Existing home sales fall for eighth straight month in October

WASHINGTON -- Sales of existing homes fell for the eighth consecutive month in October, with median home prices falling by a record amount. Analysts blamed the worsening housing slump on the credit crunch that hit in August.

The National Association of Realtors today reported sales of existing single-family homes and condominiums dropped by 1.2 percent last month to a seasonally adjusted annual rate of 4.97 million units.

The median price of a home sold last month declined to $207,800, a drop of 5.1 percent from a year ago, the biggest year-over-year price decline on record.

In Illinois, the median home sale prices statewide dropped slightly, but in the Chicago area the median sale price increased 3.1 percent compared to a year ago, according to the Illinois Association of Realtors.

The Chicago area median home sale price in October was $250,000, up from $242,500 in October 2006. Statewide, the median sale price was $195,000 for the month, down 1.5 percent from $198,000 a year ago. The median is a typical market price where half the homes sold for more, half sold for less.

Statewide there were 10,043 total home sales, which includes single-family homes and condominiums, in October 2007, down 23.1 percent from October 2006, which logged 13,067 home sales, the state association said. Year-to-date, sales were down 16.1 percent to 122,394 homes sold January through October 2007, compared to 145,851 homes sold during the same period last year.

Comparing month-to-month, sales were down 4.1 percent in October 2007 from September 2007, when 10,476 homes sold.

In the Chicago area, home sales totaled 6,558 in October 2007, down 27.2 percent from 9,007 home sales in the same month last year. Year-to-date, sales were down 19.3 percent to 81,852 homes sold January through October 2007 compared to 101,414 homes sold during the same period last year.

Nationally, analysts blamed the October weakness on the fallout from a serious credit crunch that roiled financial markets in August. Banks and other lenders have tightened credit standards in response to a soaring level of defaults, especially on subprime mortgages, loans provided to borrowers with weak credit histories.

The worry is that the credit crisis and a deepening housing slump could be enough to push the country into a recession.

In another sign of spreading economic weakness, the Commerce Department reported Wednesday that orders to factories for big-ticket manufactured goods declined by 0.4 percent in October. It was the third straight drop, the longest stretch of weakness in nearly four years.

By region of the country, sales were unchanged in the Northeast and the South and down by 1.7 percent in the Midwest and 4.4 percent in the West.

Lawrence Yun, chief economist for the Realtors, said the big drop in the West reflected the fact that the market for so-called "jumbo mortgages," loans higher than $417,000, tightened considerably this summer. California, with its high home prices, depends heavily on the availability of jumbo loans.

"Temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated," Yun said. "We continue to see the biggest impact in high-cost markets that rely on jumbo loans."

Yun said he believed the drop in sales, which left activity in October 20.7 percent below the level of a year ago, was nearing its end. He said a greater willingness of lenders to start offering jumbo loans again and the use of Federal Housing Administration-insured loans in place of subprime mortgages will help generate a rebound.

However, other economists are predicting housing could remain depressed for many months to come as sellers face high inventories of unsold homes.

While economic growth roared ahead at a rate approaching 5 percent in the summer, many economists believe growth has slowed dramatically in the current quarter from the combined blows of the most severe housing slump in more than two decades, the credit crunch and rising energy prices.

The government will release its latest look at overall economic activity on Thursday and it is expected to show growth at an annual rate of around 4.9 percent in the July-September quarter. However, growth in the current October-December period is expected to slump to a barely discernible 1.5 percent or even less.

Many economists have raised the odds that the country could fall into an outright recession to as high as 40 percent although they believe the Federal Reserve, which has already cut interest rates twice since September, will keep reducing rates if economic activity continues to falter.

In remarks Wednesday, Federal Reserve Vice Chairman Donald Kohn said the Fed's monetary policies need to be nimble to address current risks.

"The increased (financial market) turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October," Kohn said in remarks to the Council on Foreign Relations.

One of the troubling aspects of the report on durable goods was that orders for capital goods excluding aircraft, a category considered a good proxy for business investment, fell by 2.3 percent in October, the biggest decline since a 2.4 percent fall in February.

It had been hoped that business investment would offset part of the slump in housing. However, the October decline, if it continues, could show businesses are paring back plans to buy new equipment in the face of widening economic problems.

Excluding the volatile transportation category, durable goods orders fell by 0.7 percent in October, the biggest drop since a 1.7 percent fall in August.