The median home price was $225,000 in August, off 1.7 percent from August 2005; it was the first year-to-year median price decline since April 1995 when there was just a .1 percent drop, and it was the second biggest in the 38-year history of the National Association of Realtors survey.
The pace of existing home sales in the United States fell for a fifth straight month in August, it equated to an annual rate of 6.30 million units out of a national total of roughly 100 million homes.
Inventories of unsold homes rose 1.5 percent to 3.92 million, a 7.5-month supply at the August sales pace, the most since April 1993.
The national average rate for a 30-year, conventional, fixed-rate mortgage was 6.52 percent in August, compared to 5.82 percent in August 2005.
Last week, the Commerce Department reported that construction starts on new homes was 20% lower than the year earlier 2.075 million. The month-over-month decline of 6 percent in August from July was the sixth one this year and put housing starts at the lowest level in more than three years. Home builder confidence dropped in September for the eighth consecutive month and now stands at the lowest point in more than 16 years.
For California, sales of existing houses plunged 30.1% in August from the same month last year. Of course, the California median sales price for existing homes was $576,360 in August, more than twice the national median price.
Regionally, the biggest drop in year-to-year sales was in the West at 22.8 percent, and the smallest in the South at 7.4 percent.
People in the real estate, home building and financial sectors are mostly putting positive spins on all the bad news, suggesting a relatively "soft landing." David Lereah, chief economist for the National Association of Realtors, said the market was cooling rather than collapsing. "This is the price correction we've been expecting," Lereah said. "With sales stabilizing, we should go back to positive price growth early next year." Richard Fisher, president of the Dallas Federal Reserve Bank said that inflation was likely to be dampened by a slowing economy and that though housing and autos were economic weak points, the rest of the economy was "healthy and robust."
A different view was "Pop goes the housing bubble," according to Joel Naroff, chief economist at Naroff Economic Advisors. He predicted prices will tumble farther as home sellers struggle with a record glut of unsold homes. "The housing slowdown is about a year old. It probably has another year to run," said Patrick Newport, an economist at Global Insight. Other realists believe that the decline in prices could become so severe that it would mirror the bursting of the stock market bubble in 2000, which helped push the country into a full-blown recession.
And in Canada Stéfane Marion, an economist at National Bank, disagreed with positive views in the U.S., especially that prices will start climbing again. "In our opinion, this forecast is way too optimistic." In fact, the prediction was that housing prices would drop another 10 percent. Marion also noted that "Even at the current reduced price of around $225,000, it is important to keep in mind that the median single family home is still selling at 3.7 times median-family income."
Consumer spending drives the American economy and clearly spending on homes is extremely important. So what is this housing bubble bursting saying about the political fortunes of Republicans and Democrats this November?
Compared to the recent sharp reductions in gas prices that affect virtually all Americans in positive ways on weekly basis, all the bad news about sluggish housing sales and decreasing sale prices is much less important. Simply because less than about 10 percent of the population is involved with selling homes in a year. However, people with recently popular interest-only mortgages could find themselves in serious trouble if the value of their homes decrease and they have not paid off any of the principal. Either expensive refinancing or foreclosures face them. Still, the housing bubble will not affect many Americans before November.
Bottom line: the net economic story is a positive for the Republicans this coming November.