Real estate downturn -- What you need to do now

July 26, 2006

The National Association of Realtors (NAR) reported on July 25 that existing home sales in June were selling at a rate 8.9% lower than last year -- 6.62 million units vs. 7.27 million units. Median sale prices were basically flat at $231,000 vs. $229,000 this time last year. There is a 6.8 month supply of unsold homes, which is up 50% from last year, when there was only a 4.4 month supply.

Condo sales are being hit the hardest, with sales 14.6% lower than last year, and prices 2.1% lower. Single family home sales, which make up 5.8 million of the total sales reported by NAR, were 8% lower than last year, and prices were flat, up only 1.1% year over year.

The West and the Northeast declined the most, with sales down 17% and 9.8% respectively. The Midwest and South were only down 5-6% overall.

The National Association of Home Builders reported on July 19 that new single family home starts were also down significantly -- a rate of 1.5 million units or 13.8% lower than last year. Here again, the West and Northeast were hit hardest, with starts down around 10%. New home permits, which are typically issued 60-90 days before a home starts, were 1.4 million units, down 17% from last year’s rate.

What It Means:
No doubt about it, we are in a full-fledged cyclical housing downturn. The difference this time is the introduction of interest-only loans over the last few years. This means that, as interest rates continue to increase, more homeowners will be forced to sell -- lowering housing prices even further. Although NAR and NAHB are stating publicly that it will be a soft landing, the next six months could be pretty gruesome.

Action Steps:
If you are thinking about moving to a larger home, wait about six months or a year, if you can. Use the money you would have put into the larger home as payment against principle in your existing home. That way, you will have more equity available when it comes time to move.

If you absolutely have to move, price your home to sell within 30 days or less. Sale prices will do nothing but decline for the next six months, so the longer your house stays on the market, the less you will get for it...and the more competition it will have.

Source: National Association of Realtors web site, National Association of Home Builders web site