U.S. home-price growth slowed during the second quarter from a year earlier in the sharpest three-month plunge on record, according to a government report issued today that indicates this year's housing slump is deepening.
``The wheels are coming off the housing market,'' said Scott Anderson, an economist at Wells Fargo & Co. in Minneapolis.
The housing market is not a fast moving market. It's more akin to an oil tanker than a speedboat. It takes awhile for prices to move. So when prices drop the most in 31 years, it's a strong signal a problem exists.
The quarterly slowdown came during the ``spring selling season,'' when about half of a year's home sales typically occur, suggesting the housing market may be slowing more rapidly than economists including Anderson initially predicted. In 2005, the last of five record years for home sales and price gains, the second quarter was the strongest, according to Ofheo data.
The signal of future problems increases when prices drop during the strongest selling season of the year.
Prices for single-family homes rose an average of 1.17 percent during the period, compared with 3.65 percent growth in the second quarter of 2005, according to a report issued today by Office of Federal Housing Enterprise in Washington. The drop was the biggest since the agency began keeping records in 1975. The report doesn't give an average price, only the percent of change.
But the price gains may be overstated:
The housing sector may be weaker than the report indicates because the index excludes condominium and luxury home sales, said Robert Mellman, an economist at JP Morgan Chase & Co. in New York. The index measures changes of values for single-family properties that have loans bought or securitized by Fannie Mae or Freddie Mac. It excludes houses that have mortgages higher than $417,000, the maximum allowed in 2006 for loans bought by the government- chartered companies.
``To the extent that pricing at the high end of the market and pricing for condos are especially weak, the Ofheo index may be overstating price gains,'' Mellman said in a note to clients.
Sales of existing houses and condominiums declined to an annual rate of 6.69 million in the second quarter from a 7.19 million pace a year earlier, the National Association of Realtors said on Aug. 15. The median price for a condominium dropped 0.3 percent to $225,800 from a year ago, the first decline on record, while the median for a single-family home rose 3.7 percent to $227,500, the slowest pace in six years.
On top of price declines, inventories are at record levels:
Higher mortgage rates discouraged buyers and pushed the inventory of existing homes on the market to 3.86 million in July, the highest ever recorded, the National Association of Realtors said Aug. 23. The supply of new houses for sale in July rose to a record 568,000, the Commerce Department said Aug. 24.
This explains why homebuilders confidence is at 15-year low:
And the US consumer is already heavily in debt, meaning there probably won't be many buyers in the market.
So, we have the biggest year over year price drop in 31years, record high inventories and a heavily indebted consumer who probably can't buy much more housing. In addition, homebuilders - the people who know the market best - at feeling very uneasy about housing.