US House Prices set to fall this year. 2006 drop most in 17 years
January 28th, 2007US house prices ’set to fall’
US house prices are likely to fall this year after the number of people selling their homes fell by the most in 17 years in 2006, according to a leading real estate broker.
Tom Kunz, chief executive of Century 21, predicted a slight fall in prices this year as figures from the National Association of Realtors on Thursday showed the pace of existing home sales slipped 0.8 per cent last month to 6.22m.
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The fall in home sales was sharper than expected and underlines the fragile state of the housing sector, but industry economists continued to predict a stabilisation of the market this year following a protracted slowdown.
The national median price of existing homes was slightly higher than a year earlier, at $222,000, according to the industry association.
Mr Kunz predicted softening ahead: “Sellers have finally figured out that this is a buyers’ market. For too long they were hung up on the couple down the street that put their house on the market at $300,000 and got $350,000. But that is not going to happen anymore.”
“You are starting to see some price reductions. It is already happening in overheated markets like Florida, California and Boston,” said Mr Kunz, who heads one of the country’s largest real estate companies.
The sharpest drop in purchases last month was in the West, where sales fell 9.1 per cent, while they rose 4.3 per cent in the Midwest.
David Lereah, chief economist at the National Association of Realtors, pointed to a decline in inventories of unsold homes to 7.9 per cent to 3.5m as a precursor to stabilisation. “It appears that we have established a bottom,” he said.
The industry association has launched a national advertising campaign to persuade Americans that this is a good time to buy, but the Federal Reserve has warned that it continues to monitor the market closely.
Most industry analysts expect sales and construction activity to bottom out before the end of the year, and are forecasting either a slight fall or modest increase in prices.
But many bank economists argue the outlook is very uncertain, as mortgage applications – a leading indicator of activity – remain volatile despite signs of wider economic growth.
Mr Kunz said the real estate industry was pinning its hopes for a stabilisation on a shift from speculative investing to “traditional buying motivations such as births, marriages and divorces.”
Copyright 2007 Financial Times