Housing slump continues -- At least through next spring

September 6, 2006

New home sales have fallen 22% since last July, according to the National Association of Home Builders (NAHB). This has backed up inventory to 568,000 units, a 6.5 month supply. NAHB expects the downswing to continue through the spring of 2007.

Resales are also in a slump. The National Association of Realtors reported that the number of pending sales of existing homes was down 16% from last year. Pending sales are those that are under contract, and are waiting to close.

What It Means:
If you are trying to sell your home, it is obvious how bad this news is. Since real estate comprises such a large part of the economy, however, the impact is only starting to be felt. For example, real estate mortgages are a third of bank assets. As the number of new mortgages decline, and existing mortgages default due to higher interest rates, banks will earn less revenue.

Action Steps:
If you need to sell your house before next spring, lower your price to get it to sell before the Christmas season. The temptation is to keep your price at last month’s level and hope the “right buyer” comes along. Meanwhile, the market keeps sinking and you will eventually be forced to lower your price substantially to move a house that has been on the market too long.

If you can, wait a year to sell. The market should start pulling out of its slump by fall of 2007.

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