Home sales hit new low, prices drop

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NEW YORK (CNNMoney.com) -- Sales of existing homes fell to a record low in October, as even the largest drop in home prices ever wasn't enough to revive moribund sales, according to the latest reading on the battered housing market by an industry trade group released Wednesday.

The National Association of Realtors reported that sales by homeowners fell in October to an annual pace of 4.97 million, down from the revised September reading of 5.03 million. September had marked a record low since the trade group started tracking sales for both single-family homes and condos in 1999.

October marked the eighth straight month that the pace of sales has declined from the month before, and it left sales down 20.7 percent from a year ago. It was also worse than the consensus estimate of economists surveyed by Briefing.com who had forecast an annual rate of 5 million.

The median price of a home sold during the month fell 5.1 percent to $207,800 from $218,900 a year earlier. It marked the largest year-over-year drop in prices and the 15th month in the last 17 in which that key measure declined. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier.

The median price of a single-family home fell even more, dropping a record 6.3 percent to $205,700. The trade group has tracked those sales prices going back to 1989, so the record is even more significant than the record price drop in all existing homes. The previous record price drop for that key part of the housing market was set in September.

"Price declines are part of the healing process, but we have a lot of healing to do," said Paul Kasriel, chief economist of Northern Trust in Chicago. "Obviously, when you have excess supply, one of the ways you come back into equilibrium is with price declines, and we're starting to see that that with a vengeance. Of course we're going to see more - it's not over."

The excess supply of homes on the market reached near-record levels in October. Realtors estimated that there are now 4.5 million homes available for sale, which represents a nearly 11-month supply. That is up from the 10.4-month supply in September and is the largest glut of homes in more than 22 years.

"We expect inventory problems in the existing home market to take a few years to work through," said Adam York, an economist with Wachovia.

The Realtors said the price drop is distorted by continued problems in the market for so-called jumbo loans, which are mortgages of more than $417,000. The mortgage woes have made it difficult to sell securities backed by those loans, and that in turn has choked off the ability of some buyers of expensive homes to arrange financing.

The group also said that 93 of 150 metropolitan markets are showing either flat or slightly higher prices, despite the decline in national price readings.

"We continue to see the biggest impact in high-cost markets the rely on jumbo loans," said Lawrence Yun, chief economist for the trade group. Still the group's existing home sales figures showed the Northeast, a region with a large percentage of high-priced markets, had flat sales compared to September and a slight uptick in median sales price compared to a year earlier.

The Realtors also highlighted the fact that the annual pace of sales of single-family homes in October was 4.37 million - the same as the prior month. But that September reading had been the weakest annual sales pace since January 1998.

The condo market is particular hard hit, as sales plunged 9.1 percent from September, as the supply of condos rose to 13.1 months worth from 12.2.

The weak housing market has hit home builders particularly hard.

Of the nation's largest home builders, only luxury home builder Toll Brothers (Charts, Fortune 500), No. 6 in terms of revenue, has yet to report a quarterly loss in the current downturn. Analysts are forecasting a loss for Toll's just completed period after preliminary results showed a sharp drop in the number of homes sold and an even steeper decline in prices.

The five builders larger than Toll all reported much larger-than-forecast losses in recent financial periods. Earlier this month Hovnanian Enterprises (Charts, Fortune 500), the nation's No. 7 builder by revenue, reported that the sales pace during October "significantly deteriorated" in most of its markets, and its preliminary results also showed a sharp rise in cancellations. D.R. Horton (Charts, Fortune 500), the No. 3 builder, reported a smaller than expected loss last week.

In October, credit rating agency Moody's downgraded the debt of No. 1 home builder Lennar (Charts, Fortune 500), No. 2 Centex (Charts, Fortune 500) and No. 4 Pulte Homes (Charts, Fortune 500) to junk bond status.