Home prices: 1st drop in 11 years

Sales slow, prices hit by second biggest year-over-year drop on record; surge of homes for sale seen keeping prices weak.

By Chris Isidore, CNNMoney.com senior writer

September 25 2006: 1:41 PM EDT

NEW YORK (CNNMoney.com) -- Home sales slowed and a key measure of prices fell for the first time in 11 years last month, spurred by the biggest glut of new homes on the market in more than a decade, an industry group said Monday.

The National Association of Realtors report on existing home sales showed that the median home price in August was $225,000, down 1.7 percent from a year earlier.

It was the first year-over-year decline in median prices since April 1995, when that measure slipped only 0.1 percent. And it was the biggest year-over-year drop since the record 2.1 percent decline recorded in November 1990, when the nation was in recession.

While month-over-month declines in prices are not uncommon, year-over-year decreases in prices are a more serious sign of a slumping housing market. Even in other recessions, home prices generally have risen year-over-year on a national basis. The median price is the point at which half the homes sell for more and half sell for less.

The decline in home prices follows a period of record sales and very strong sales gains up through the end of 2005. The average price of a home in 2004 was up 9.3 percent from the previous year, and last year the full-year price average was up 12.4 percent.

The report also showed the pace of sales essentially leveling off, slipping to an annual pace of 6.30 million in August from a revised July reading of a 6.33 million rate. While that's down just a bit from July, the pace of sales is down 12.6 percent from a year earlier.

The group's report also showed the average price, which is typically higher than the median price, slipped 1.5 percent from a year ago to $271,000 in August.

Mortgage rates have come down in recent weeks, with the average 30-year fixed rate mortgage now at 6.4 percent, according to mortgage financing firm Freddie Mac (Charts). That's down from 6.79 percent in early July.

The drop in rates, which reduces the cost of home ownership, won't necessarily show up in existing home sales figures for several months, though.

But some in the industry say lower mortgage rates won't be enough to revive the sales market, which hit its ninth record in 10 years in 2005. Sellers also will have to start reducing prices to get sales back on track.

Source: CNNMONEY.com – Full Story go to: http://money.cnn.com/2006/09/25/news/economy/homesales2/index.htm?postversion=2006092513