New Home Sales Edge Higher After Price Plunge

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Home prices sank at the fastest rate in two decades during the first quarter of 2008. But in a glimmer of hope for the housing market, sales of new homes rose in April.

NOAH ADAMS, host:

From NPR News, its ALL THINGS CONSIDERED. I'm Noah Adams.

There is no let-up to plummeting home prices. Today, a closely watched survey found that prices in March of this year are more than 14 percent lower than in March one year ago. That's the biggest yearly drop in the 20-year history of that survey.

And as NPR's Chris Arnold reports, real estate prices are expected to keep falling.

CHRIS ARNOLD: Prices are tanking. The market is glutted with unsold homes, foreclosures are rampant. One of the most startling figures: by one estimate, in the first part of this year, of all home sales - that's all the homes sold around the U.S. - one-fourth were distressed sales, like foreclosures.

Mr. MARK ZANDI (Moody's Economy.com): This is just shocking. I mean, price declines of 10, 20, 30 percent nationwide and foreclosures running well over 2 million a year. I mean, this is just stuff for the storybooks.

ARNOLD: That's Mark Zandi with Moody's Economy.com. He says all those foreclosures are continuing to create a giant mess.

Mr. ZANDI: It is just wreaking havoc, particularly in terms of prices because most of these sales occur at very discounted prices - 30, 40, 50 percent discount, even to the depressed market prices that prevail. And so that's putting lots of pressure on anyone else who's trying to sell a home.

ARNOLD: That's a much bigger problem, obviously, in neighborhoods with a lot of foreclosures. Karl Case is a housing economist who helped design the Case-Shiller Home Price Index. That's the index that reported the historic drop today. He says the problems are worse in the lower part of the market.

Mr. KARL CASE (Designer, S&P/Case-Shiller Home Price Index): In virtually every city, the volatility has been in the bottom end of the market. House prices went up the most at the low end and are coming down the most at the low end. And that's clearly because of the subprime phenomenon.

ARNOLD: So take, for example, many working-class, immigrant neighborhoods. During the subprime lending craze, house prices there went through the roof. Lenders gave people much bigger loans than they could really afford to pay. And now all that's imploding. But in more affluent neighborhoods...

Mr. CASE: The middle and the upper end of the market are behaving much better. The declines are much smaller.

ARNOLD: But basically, anywhere prices got way ahead of themselves, that's where we're seeing the big corrections. Economist Bill Wheaton at MIT says it's also condos in Florida or the homes just a bit too far outside of cities with longer commutes.

Professor BILL WHEATON (MIT): The edge of cities, newly developed suburbs, that's where prices are dropping the most relative to closer in, more established neighborhoods.

ARNOLD: As far as when all this gets better, most economists think the market won't recover for another year or two, and even then it might be five- plus years before prices get back to their peaks. Chip Case is more optimistic. He thinks bargain hunters are already starting to come into the market, and he suspects we may see some signs of a recovery more quickly than people think.

Chris Arnold, NPR News.

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