Oct Housing Sales Up But Inventory Rising, Prices Falling

By Janet Morrissey

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Existing home sales came in slightly better than expected in October, but experts caution inventory and pricing data indicate the housing downturn will likely get worse before it gets better.

Figures released from the National Association of Realtors Tuesday shows sales of existing homes rose to a seasonally adjusted rate of 6.24 million homes in October, up 0.5% from September’s revised pace of 6.21 million, but still 11.5% below the year-ago annual pace of 7.05 million units.

The modest improvement between September and October came as a surprise for economists and analysts who had expected sales to drop. Banc of America analyst Dan Oppenheim had been predicting a 5% decline.

However, the news was offset by bigger-than-expected home price declines and a surge in inventory – which are key indicators that the deteriorating housing market has not turned a corner.

The data showed the median price of an existing home was $221,000 in October, down 3.5% from October 2005 – marking its biggest dropoff since at least 1968, noted Dr. Martin Weiss, president of Weiss Research, a financial research and advisory firm.

At the same time, inventory levels surged to 7.4 months from 7.3 months in September and 4.9 months a year ago. The inventory time levels reflect the amount of time it would take to clear the inventory based on the current sales pace. “They’re now up to a new high of 7.4 months,” said Weiss.

Gregory Miller, chief economist for SunTrust Banks, doesn’t see the modest month-over-month sales increase as any indication that the market is rebounding.

“We’re still declining, but at a slightly slower rate,” Miller said, noting that sales were down 11.5% year-over-year. Even if the sales declines continue to decelerate, he said it will be well into 2007 before the market sees a material improvement in sales. Since inventory levels continue to rise, he said it would likely be at least six months before double-digit sales declines turn into single-digit decreases.

Miller predicts prices will fall 12% to 16% over the next year, before prices stop declining.

“It will likely be late next year before we see prices get back on the other side of the line,” he said.

Sales of existing condominium and co-op units took the biggest hit, falling 4.8% from September and 14.5% from a year ago. This segment’s inventory rose to 9.1 months – which is “really startling,” said Weiss.

Weiss sees inventory levels as a key metric in determining how much the housing market is deteriorating. “As long as that’s high, then it means there’s more to go on the downside,” he said. “And this inventory figure is not stabilizing, it’s not getting better – it’s getting worse.”

– Janet Morrissey; Dow Jones Newswires; 201-938-2118