TWOD

Homeowners Cut Prices, Drawing Some Buyers Back
Jack Smith/Bloomberg News

In November, home sales rose for the second straight month.


By JEREMY W. PETERS
Published: December 29, 2006

New York Times

The sales rate for previously owned homes rose in November for the second straight month, an industry group said yesterday, as homeowners eager to unload their properties in a crowded market cut their prices.

The group, the National Association of Realtors, reported that sales of existing homes increased 0.6 percent over October, to a seasonally adjusted annual rate of 6.3 million. But sales remained significantly behind last year’s levels, falling 10.7 percent from November 2005.

The median price, the midpoint of prices for homes sold, dropped to $218,000 in November, down 3.1 percent from a year earlier.

Economists said falling prices — November was the fourth consecutive month in which the price of a previously owned home declined year over year — were starting to draw back buyers who had been wary after years of double-digit home price increases.

“Prices coming down are bringing people back to the marketplace,” said David Lereah, chief economist of the Realtors association. “That’s bad news for people who own houses, but it’s working.”

While recent signs have led some economists to speculate that the worst of the housing slump has passed, many, including those at the Realtors association, are taking a wait-and-see approach.

“Maybe we’ve hit bottom,” Mr. Lereah said. “I’ll need another month before I can get comfortable with that statement.”

Still, the back-to-back monthly increases in sales of previously owned homes, coupled with a report Wednesday showing a rise in sales of new homes in November, suggests to some economists that the housing decline is starting to stabilize.

Gary Bigg, an economist with Bank of America, said in a research note that the housing reports from this week suggest “that housing demand has firmed, albeit at a lower level than in 2005.”

The upturn last month in sales of previously owned homes was largely a result of a 6 percent rise in the Northeast that offset flat sales in the Midwest and a 1.6 percent decline in the South. Sales in the West rose 0.8 percent.

Median prices declined in each region of the country, led by the Midwest, where it fell 3.5 percent, to $165,000, from a year earlier. Prices in the South fell 3.2 percent, to $179,000. In the Northeast, they were down 2.2 percent, at $269,000, and the West was down 0.8 percent, at $351,000.

In the months ahead, selling off the huge supply of unsold homes will be crucial to determining whether the housing market will rebound, analysts said.

In November, the time it would take to sell all the existing homes on the market fell to 7.3 months, down from 7.4 months in October. The October number represented the biggest backlog of single-family homes since May 1993.

“We still need to clear a huge amount of inventory,” said David Kelly, an economist with Putnam Investments.

While a decline in residential construction lopped more than one percentage point off the nation’s gross domestic product in the third quarter, strength in other areas of the economy has prevented the housing slowdown from becoming too much of a drag.

“The encouraging sign is that the rest of the economy is O.K.,” Mr. Kelly said. “And we’re really running out of time for housing to hurt the rest of the economy.”

Yesterday, a pair of economic reports suggested that the economy outside of housing is on sturdy footing.

The Conference Board’s index of consumer confidence rose this month to the highest level since April. And a report on business activity in the Midwest showed an increase this month, according to the National Association of Purchasing Management-Chicago. Last month, the report showed a contraction in business activity for the region.