Supply of homes on US housing market at 22-year high

Ashwin Tombat
30 November 2007

The US housing crisis has spread well beyond 'proper' sub-prime mortgages to home loans that were once regarded as relatively safe.

Sales of homes fell for the eighth continuous month in October 2007, as more properties came on the US housing market, driving the supply of homes up for sale to the highest level in 22 years, the National Association of Realtors (NAR) reported on Wednesday 28 November.

Consider the data:

•  Sales are down 20.7 per cent in the past year, and 31 per cent down from the peak of 7.21 million, two years ago.
•  The October 2007 sales pace was stronger than the 4.85 million expected by economists.
•  Notwithstanding this, the inventory of unsold homes rose by 1.9 per cent to 4.45 million, representing a 10.8-month supply, the highest in eight years.
•  For unsold single-family homes, the inventory of 10.5 months is the highest since July 1985.
•  The median sales price fell 5.1 per cent in the past year to $207,800. That''s the largest year-over-year price decline ever recorded.

Seasonally adjusted sales dropped 1.2 per cent to an annualised pace of 4.97 million last month. The sales pace stands at the lowest seen since 1999, when the NAR began tracking combined sales of single-family homes and condominiums.

How much lower?
Bleak as the data is, the fundamentals of the market don''t support a further decline in sales, says NAR chief economist Lawrence Yun. He feels low mortgage rates and job growth should keep sales from falling, since the sub-prime mortgage market has disappeared and the Federal Housing Administration is picking up its lending.

But that may just be wishful thinking. The NAR didn''t anticipate the sales declines of the past two years, and it''s been predicting a bottom nearly every month since early 2006. It's the NAR's considered view that if sales do continue to fall, it's because of negative market psychology aided by 'sensationalised' news reporting.

The group does admit, though, that it would be a “major concern“ if home prices kept falling, and “would raise the risk of an economic recession“. Analysts who take a more objective view feel that prices and sales of housing will hit bottom in mid-2008. The problem is that they also feel that between now and then, home sales may drop more than 10 per cent from the current abysmal levels.