RISMEDIA, September 27, 2006—(MCT)—At a pace that some analysts described as ‘astonishing,’ the price of existing homes declined nationally for the first time in 11 years in August, signaling that the long-awaited other shoe has finally dropped on the real estate market.
Home sales have been slowing for months but sellers appeared to be holding out to get their price. Now the pressure to sell is intensifying, leading to a drop in house values across the country.
In the Chicago region, prices stayed flat for the month, meaning that the average homeowner missed out on appreciation. But analysts see price declines hitting the area soon as anxious sellers give in to the trend and lower their asking prices.
Economists worry about the housing slump's ripple effects. Even as the boom began to wind down last year the housing market probably contributed about $2 trillion to the U.S. economy, according to the National Association of Realtors. One estimate from Goldman Sachs predicts that the slowdown will cut 1.5 percentage points from the nation's economic growth in 2007.
The Realtors' association reported that the median price for existing single-family homes nationwide slipped 1.7% from last August, the first such decline since April 1995. It also was the second-biggest decline in the 38 years the Realtors have gathered sales data.
"It's pretty amazing how fast the reversal has occurred since last year," said David Stiff, chief economist at Fiserv CSW, a property-data analysis firm in Boston.
"There has never been such a quick deceleration in price appreciation," Stiff said. "I was looking at data from 1969 forward, and it's unprecedented."
Illinois home prices, which had declined incrementally in June and July, dropped 1.9% in August, to $210,900 from $214,900, according to the Illinois Association of Realtors.
The nine-county Chicago region avoided price depreciation, and condo prices inched up 3.4%.
But there is no denying that the slowdown is taking a toll. Chicago-area sales in August were down nearly 21% from last year, while condo sales were off 11%.
During the lull the inventory of homes for sale has grown about 40% from last August. Local realty executives say sales will pick up when more sellers cut their asking prices to more realistic levels.
"It's a transitional market, and the sooner we get out and make 1/8price3/8 adjustments, the better," said James Merrion, regional director of Re/Max Northern Illinois in Elgin.
"Too many sellers got greedy," he said. "Prices have to come down."
Not so, said Tommy Gentile, who has been trying to sell his five-bedroom home in west suburban Montgomery for about six months. He has reduced the price by $20,000, to about $380,000, leaving little wiggle room.
"That price is pretty close to rock-bottom, as far as money we've put into it," Gentile said of the house, bought two years ago. "We have to get our money back because we've bought another house, and we're remodeling that one. We have two mortgages."
Few people are coming to take a look, Gentile said. Between competition from home builders offering incentives to close out developments and about 10 neighbors who also have their homes for sale, it's a struggle to attract interest.
Nationally, the Realtors said total sales slipped 12.6% from August 2005.
Though the numbers were slightly better than anticipated, it was still the slowest rate since January 2004.
Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, NewYork, said the national price news probably was worse than reported.
"We estimate that seasonally adjusted single-family home prices have fallen at a 5.9 percent annualized rate in the past three months," Sheperdson said. "The speed of the collapse has been astonishing. This time last year single-family homes were up 16.4 percent, year over year."
David Lereah, chief economist for the National Association of Realtors, predicted that though prices aren't done sliding, "we have reached bottom in terms of sales, or close to it."
"Prices are going to continue to go down for the remaining months of the year," he said.
"For some areas, like south Florida and California, it's going to take a lot longer, but for most areas, starting in 2007, prices will be up just a little," he said.
Others see it taking longer.
"With inventory still rising, there is no chance of any short-term relief," said Shepherdson. "Prices and volumes have a long way to fall yet."
Merrion said price cuts should continue, and then the market will right itself. "Where there's a glut of inventory, you're going to see fairly good-size price reductions of 5 to 10 percent," said Merrion. "But it will be temporary and the market will catch up in a year or a year and a half."
In the data released Monday some parts of the Chicago market saw increases in sales and prices.
Sales of all types of properties in Grundy County, for example, grew by an eye-popping 15%; most other counties' increases, however, were far smaller.
Home sales in Cook, DuPage and Kane counties rose about 1 to 2%.
Bloomberg News contributed to this report
Copyright 2006, Chicago Tribune
Distributed by McClatchy-Tribune Business News.
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