Article in October 2, 2007 WSJ

Pending-Home Sales Decline

By JEFF BATER
October 2, 2007

WASHINGTON -- The battered housing sector took another blow Tuesday, with an industry group reporting that a gauge of pending home sales tumbled to its lowest level ever as the credit crunch restrains purchases.

The National Association of Realtors' index for pending sales of previously owned homes decreased at a seasonally adjusted annual rate of 6.5% to 85.5 in August from July's 91.4, the industry group said. The August index was at its lowest point since tracking began in January 2001. The previous low was 89.8 in September 2001.

NAR senior economist Lawrence Yun said the troubled mortgage market hurt sales.

"Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10% of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments," he said.

The NAR index, based on signed contracts for previously owned homes, was 21.5% below the level of August 2006.

"The volume of activity we're seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can't because of the credit crunch," Mr. Yun said.

The impact was greater in high-cost markets more dependent on jumbo mortgages, he said.

"In some areas, as much as 30% of signed contracts were falling through in August when the credit crunch problem peaked," Mr. Yun said. "The problem has since become less severe, though jumbo loan rates are still higher than they would be under normal conditions. Therefore, sales activity in late fall will better reflect market fundamentals."

The NAR's pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

By region, the Northeast decreased 8.3% in August from July; it fell 18.3% from August 2006. The Midwest fell 2.9% in August from July; it fell 18.0% since August 2006. The South decreased 9.5% in August from July; it dropped 21.3% since August 2006. The West declined 2.7% in August from July; it tumbled 27.1% since August 2006.

Article in September 27, 2007 Detroit News

House price drop foreboding

A big decrease in home costs could trigger a drag on the economy that may last for years, expert says.

Alan Zibel / Associated Press

WASHINGTON -- U.S. home prices have fallen further since mid-2006 than during the 1990-91 recession and professional traders bet they'll plunge up to 10 percent more the next year.

If the speculative traders making big-money bets on where housing prices are headed are right, the question is not whether a U.S. recession is ahead but when it will start.

Sizable drops in home prices in a year would likely curtail consumer spending sharply. Yale University economist Robert Shiller, who has warned of inflated home prices, says a big hit to U.S. housing assets, worth about $23 trillion, would shock the broader economy.

"It will upset balance sheets, it will upset lots of our economic institutions," said Shiller, who argues that prices were driven higher by greed, not people looking to buy a place to live.

Adjusting for inflation, housing prices have soared 86 percent in the past decade although some cities, such as New York, Los Angeles and Washington, saw far larger jumps than most regions of the country.

Yet home owners across the nation tapping into credit lines pegged to the value of their houses has been a potent economic driver in recent years.

For the vast majority of U.S. households, the home is the most substantial financial asset they hold. If its value plummets, so does their sense of prosperity, which can restrict spending on everything from vacations to cars and eating out or buying new clothes.

Home prices fell less than 3 percent during the economic downturn of the early 1990s and rose through the 2001 recession, but have already dropped 3.2 percent over the past year, according to a closely watched housing market index created by Shiller.

"This time, we're in a bigger boom, and we face the possibility of a bigger decline," Shiller told lawmakers last week.

"It's not just an issue of a recession coming up, it's an issue of a drag on the economy, which might extend over many years."