Glut of Unsold Homes Rises To 18-year High

Home prices falling at fastest pace in 16 years

In a sign that the housing slump is far from over, home resales slipped for the sixth month in a row in August as the credit squeeze forced many sales to fall through, the National Association of Realtors reported Tuesday. With sales of existing homes falling 4.3% to a five-year low seasonally adjusted annual rate of 5.50 million in August, inventories of unsold single-family homes rose to an 18-year high.

The drop in sales was close to expectations. The glut of unsold homes on the market will put further pressure on prices and new construction. Prices will likely have to fall further to bring the rising supply and weakening demand back into balance.

Inventories of unsold existing homes on the market rose by 0.4% to 4.58 million, representing a 10-month supply at the August sales rate, the realtors said. For single-family homes alone, the inventory represents a 9.8-month supply, the most since May 1989.

The credit-market freeze in August no doubt contributed to the decline in sales. Many loans that had been committed to fell through, so the sales couldn't close. An informal survey of real estate brokers showed about 10% of jumbo loans were failing to close.

The increase in inventories was driven mostly by lower sales, not by more supply hitting the market. In unadjusted terms, 596,000 homes were listed for sale for the first time in August, the fewest listings for any August in seven years. In recent years, about 700,000 or 800,000 homes would be listed in a typical August.

The median sales price was $224,500, up 0.2% since August 2006. Single-family median prices were unchanged year-over-year at $223,900. Prices are still holding on. The median price is affected by the mix of homes sold, so the bigger drop in the more-expensive West region could be masking actual price declines.

Earlier Tuesday, Standard & Poor's said the Case-Shiller home-price index for 20 major cities fell 3.9% compared with a year earlier. For the 10-city index, the 4.5% price drop in the past year is the biggest since 1991. The Case-Shiller index is not affected by the mix of homes sold in a period, since it compares sales prices of the same homes over time.

Prices are lower in 15 of the 20 cities compared with a year ago, according to Case-Shiller. The worst declines are the Rust Belt and in the formerly boom towns along the coasts. Prices are holding up in the Pacific Northwest and in areas of the South. Prices are down 9.7% in Detroit, 8.8% in Tampa, 7.8% in San Diego, 7.3% in Phoenix, 7.2% in Washington and 6.4% in Miami. Prices are up 6.9% in Seattle, 6% in Charlotte and 3.8% in Portland.

There are few signs of a bottom in the market. The home builders' confidence matched its lowest level ever in September. Housing starts fell to a 12-year low in August, an indication that builders are pulling back. However, foreclosures are rising, bringing even more must-sell supply on the market.

The Commerce Department will report on August new-home sales on Thursday. Economists surveyed by MarketWatch expect sales to fall to 825,000 annualized from 870,000 in May. It would be the slowest sales in seven years.