First Annual Drop in Home Prices Since the Great Depression

By Jason Simpkins
Associate Editor

Sales of existing homes fell more than forecast in December, bringing a somber end to the biggest annual slump in a quarter century and the first decline in prices since the Great Depression.

Purchases of existing homes dropped 2.2% to annual rate of $4.89 million, the National Association of Realtors (NAR) said yesterday (Thursday). Sales of single-family homes declined 13% and prices fell 1.8%, the first decline since records began in 1968 and probably the first since the Great Depression, the NAR said.

The combined median sales price for homes and condominiums last month fell 6.0% from December 2006, and was down 1.4% for all of 2007. Sales of condos and co-ops dropped 3.3%, and sales of single-family homes dropped 2%.

The inventory of homes for sale at the end of December fell 7.4% to 3.91 million, the group reported. At the current sales pace, there is a 9.6-month supply, down from 10.1 in November.

High inventories leave builders with little or no incentive to start construction on undeveloped lots, and are a big reason for declining prices. In December, builders broke ground on the fewest number of housing sites since 1991. Last year's annual decline in housing starts was the worst in nearly three decades.

The Commerce Department is set to report new home sales next week. Purchases of new homes, which account for about 15% of the market, hit a 12-year low in November. New home sales are considered a leading indicator because they are tabulated when a contract is signed. Sales of existing homes aren't counted until a contract is closed.

"I do expect sales to remain soft through the first quarter and possibly second quarter," said Lawrence Yun, the NAR's chief economist.

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