Homes see first annual price drop on record
The median price for a homes dropped 1.3 percent to $219,000 in 2007, while total home sales plunged by 13 percent for the year.
NEW YORK (CNNMoney.com) -- Prices of homes sold in December registered the biggest year-over-year decline on record, according to a report from an industry trade group, and 2007 is the first year on record that has seen a drop.
The National Association of Realtors (NAR) said on Thursday that the median price of homes sold in December fell nearly 6 percent from a year earlier to $208,400. The three biggest declines in prices ever recorded have now come in the last four months.
In addition to the December price decline, NAR reported the median price for all homes sold in 2007 fell 1.3 percent to $218,900, the first time that the annual price reading has shown a decline since the group started tracking that measure in 1968.
"What we saw in December was a rough month to cap off a rough year," said Mike Larson, real estate analyst with Weiss Research. "There wasn't much holiday cheer."
The news comes one day after Merrill Lynch released a study that forecasted a 15 percent decline in home sale prices for 2008.
Though NAR's chief economist Lawrence Yun called Merrill's figures "way too pessimistic," the group estimates that home prices for the current quarter will see a 5.3 percent year-over-year decline. That will represent the steepest quarterly drop on record.
Existing-home sales also declined in December, slipping 2.2 percent from November to an annual rate of 4.89 million units. The December rate is 22 percent below the year-ago pace.
The pace of total home sales plunged 12.8 percent for the year - the biggest drop on record. Single family home sales fell by 13 percent in 2007, which was the largest drop in 25 years.
The Realtors have only tracked total home sales, which includes condos and other multifamily units, since 1989, while single family home sales have only been logged since 1982.
The existing-home sales pace represents a seasonally adjusted annual rate of home sales. The pace in December was below the forecast of 4.95 million forecast by economists surveyed by Briefing.com.
"Home sales remain weak despite improved affordability conditions in many parts of the country," said Yun. "Home prices are lower, mortgage interest rates continue to decline and incomes are higher, but many potential buyers are delaying a purchase."
The downturn in home sales has hammered the results of the nation's leading homebuilders. On Thursday Lennar, the nation's biggest homebuilder, reported a $1.25 billion fourth-quarter loss, the largest in the company's history.
Earlier this month, KB Home (KBH, Fortune 500), the nation's number five builder by sales, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts. CEO Jeff Mezger told investors during an earnings call that "As we enter 2008, we see no indication markets are stabilizing."
Analysts are also forecasting that number two homebuilder Centex (CTX, Fortune 500), number three D.R. Horton (DHI, Fortune 500) and number four Pulte Homes (PHM, Fortune 500) will all report continuing losses until at least their final quarters of this calendar year. Hovnanian Enterprises (HOV, Fortune 500), the sixth-largest homebuilder, is expected to post losses in both fiscal 2008 and 2009.
The outfit forecast to see the quickest return to profitability is luxury home builder Toll Brothers (TOL, Fortune 500), which is expected to post a narrow gain in the quarter ending in July. It reported its first loss as a public company in its most recent period, which ended in October.
The outlook for the rest of 2008 remains gloomy, said Weiss Research's Mike Larson.
"We're looking at a battle royale in the market looking forward: 30-year mortgage rates have come down under 6 percent," he said. "But on the other hand, more borrowers are going to need jumbo financing to purchase a home due to the bad economy."
"Hopefully by the end of 2008 or beginning of 2009," he added, "supply levels will come down and we'll see some stabilization."