Home Sales Plunge 27 Percent To Lowest In 15 Years

Existing home sales plunged a record 27 percent in July. That's partly because many sales that would be happening now were moved forward as buyers scrambled to take advantage of a tax break that expired recently. But analysts also worry that potential buyers are worried about the economy and are putting off buying despite record low interest rates.

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ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block.

We expected bad numbers, but today's report on the housing market was a real doozy. The National Association of Realtors says sales of existing homes plunged more than 27 percent in July. That's almost twice what was predicted. We're going to explore the state of the housing market in this part of the program. Much of the big drop is being blamed on the expiration of the government's home buyer tax credit.

And NPR's John Ydstie reports the housing market also faces more fundamental problems.

JOHN YDSTIE: July's big drop drove existing home sales to their lowest level in 15 years. Despite record low mortgage rates and average home prices 30 percent below peak levels, consumers weren't buying. Mark Zandi of Moody's Economy.com says the expiration of the tax credit was part of the reason.

Mr. MARK ZANDI (Moody's Economy.com): Homebuyers have gotten actually three tax credits over the past couple of years. And they may be waiting for a fourth.

YDSTIE: Zandi doesn't think that's likely to be forthcoming. And another tax credit wouldn't necessarily cure the housing market's woes. But Zandi doesn't think, as some analysts do, that buyers are waiting for even lower prices.

Mr. ZANDI: It's more about jobs, about stock prices, about just general confidence than it is about the thinking that house prices will fall further. In fact, the tax credits, if they did one thing, I think it broke that kind of deflationary psychology.

YDSTIE: That said, Zandi believes it's likely home prices will drift downward a little more, around five percent on average nationally. But some areas, he thinks, will see bigger declines.

Mr. ZANDI: The areas that got hit hard will continue to suffer. Florida would be a good example.

Mr. JOHN PAUL ROSSER (Realtor): I think it's going to be comparable to the Great Depression or worse.

YDSTIE: That's John Paul Rosser, who owns a realty firm in the Miami area. Rosser is much gloomier than Zandi. He thinks prices will fall another 25 percent in his area and that buyers will be on the sidelines until that happens.

Today's report from the Realtors Association did show some positive signs in Miami in terms of sales. But Rosser says that's likely due to bulk purchases of condominiums by big investors. And he argues that still means those units remain on the market. Rosser says more government tax credits aren't the answer.

Mr. ROSSER: I think all we're doing is kicking the can down the road. There's only so much the government can do.

YDSTIE: While Florida has been decimated by the real estate bust, cities in the country's heartland have suffered less. However, July's sales plunge was quite pervasive, affecting all regions of the country. Stan Angelov, who sells real estate for RE/MAX West Properties, says St. Louis was hit hard last month too.

Mr. STAN ANGELOV (Realtor, RE/MAX West Properties): July has been the slowest month that our company has seen in a long, long time.

YDSTIE: Angelov says sales last month were down more than 50 percent from last July. And last July was considered a bad month back then. But Angelov sees signs that sellers are finally facing reality and lowering prices even further. And buyers are beginning to respond.

Mr. ANGELOV: In the past two to three weeks, there has been a spike of more interest. I have started working and put contracts for three buyers, which was a great sign. And, again, I had a chance to talk to other colleagues of mine here in the office and similar accounts.

YDSTIE: If the housing market doesn't recover soon, a number of analysts predict it will drag the whole economy back into recession.

Mark Zandi doesn't think that's going to happen.

Mr. ZANDI: The housing market is clearly double dipping, given today's home sales numbers. So housing's problems are weighing on the recovery. I just don't think it's going to do the recovery in.

YDSTIE: But Zandi cautions he's not certain about that. He says a bad housing market is weighing heavily on the psyche of the country. And that's one reason he now puts the odds of a double dip recession for the whole economy at about 30 percent.

John Ydstie, NPR News, Washington.

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