Home sales thud to 5-year low point

NEW YORK (CNNMoney.com) -- Housing markets continued to slump across the nation in August as the number of existing homes sold dropped for the sixth straight month to their lowest level in five years, according to the latest report from the National Association of Realtors.

Sales fell 4.3 percent from July to a seasonally adjusted annualized rate of 5.50 million. Sales have fallen 12.8 percent since last August's pace of 6.31 million homes.

Lawrence Yun, senior economist for NAR, blamed the current credit crunch. "The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through," he said in a statement.

The slump pushed up the inventory glut to 4.58 million existing homes, an all-time high. There is now a 10-month supply of homes on the market at the present rate of sales.

More home price drops are coming

Some positive news from NAR was that prices broke a 12-month decline. The national median existing-home price for all housing types rose 0.2 percent to $224,500 in August from a year ago, when the median was $224,000.

The report clashes with other sources that have reported falling prices for most of the nation. The latest figures from the S&P/Case-Shiller index show prices fell between July 2006 and July 2007 in all 10 major housing markets covered by its main index. The average decline was 4.5 percent. Of the 20-city Case-Shiller index, 15 cities suffered declines.

Foreclosures have soared during the past year, more than doubling since last year, according to RealtyTrac, a marketer of foreclosed properties, which has added to the glut of inventory of home listings.

With inventory at an all-time high, the 10-month supply of homes has not been topped since May 1989, according to Mike Larson, a real estate analyst with Weiss Research.

"The supply of homes goes up and up every month," said Larson, who blamed much of the rise on listings put up by investors trying to get out from under unprofitable homes they bought during the boom.

"Sellers are still not being realistic about selling prices. They have a false sense of the worth of their homes," he said. Owners who do not need to sell quickly are holding out for their asking prices.

That explains the contradictory trend of fairly stable prices but sharply lower sales numbers. The slight August rise in the national median price "is not reflective of what has to happen to clear the books of inventory," said Larson.

Motivated sellers, who need to sell quickly, have had a much harder time maintaining their asking prices. According to Jonas Lee, of Redbrick Partners, a private equity firm that invests in residential real estate, motivated sellers in most parts of the nation are having to discount asking prices by 15 percent or more to move their properties within 90 days.

There could be even worse news coming, according to Larsen. "The August numbers reflect contracts signed in June and July, still not the heart of the credit crunch, which happened in August," he said.

"We'll find out next month if the Fed cut will help turn the market around," said Larson.

NAR reported that August existing-home sales in the West suffered more than any other region, dropping 9.8 percent from July and 21.7 percent from last year. The median price in the West was $332,300, 3.8 percent below a year ago.

In the Northeast, existing-home sales were off 2.0 percent from July and trailed last August by 5.7 percent. The median price in the Northeast was $282,300, up 3.6 percent from a year ago.

Sales in the South slowed by 2.7 percent from July and were 12.7 percent lower than August 2006. The median existing-home price in the South was $183,500, down 0.7 percent from last year.

The Midwest showed a 5.2 percent drop from July to an annual rate of 1.28 million, and a 10.5 percent decline from a year ago. The median price in the Midwest of $177,100, was up 3.1 percent from August 2006.