The National Association of Realtors existing home sales report for October—which was released Monday—is filled with ugly-looking numbers: sales fell 3 percent from September and nearly 2 percent from a year earlier. Total housing inventory increased to a 10.2-month supply. And the national median existing home price fell by 11 percent from a year ago—its biggest drop on record—to $183,000.
But painful as it may be, this drop in home prices isn’t bad news, it’s exactly what the market needs right now. The aggressive run up in prices that occurred during the housing boom put ownership out of reach for many would-be buyers. The market can’t recover until those buyers return, and sharp drops in home prices move the needle closer to affordability. “Ultimately, lower prices aren’t part of the problem, they are part of the solution,†says Mike Larson, a real estate analyst at Weiss Research. “It’s lower home prices that are going to bring buyers out of the woodwork and offset the tighter credit environment.â€
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