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Existing Home Sales Plunge by 8 Percent

Sales of Existing Homes Fall by Largest Amount on Record in September

WASHINGTON (AP) -- Sales of existing homes plunged by a record amount
in September as turmoil in mortgage markets added more problems to a
housing industry in its worst slump in 16 years.

The National Association of Realtors reported Wednesday that sales of
existing homes fell 8 percent in September, the largest decline to
show up in records dating to 1999. The seasonally adjusted annual
sales rate of 5.04 million existing homes was also the slowest pace on
record.

The weakness in sales translated into further pressure on prices. The
median price -- the point at which half the homes sold for more and
half for less -- fell to $211,700 in September, down by 4.2 percent
from the sales price a year ago. It marked the 13th time out of the
past 14 months that the year-over-year sales price has decreased.

The 8 percent decline in sales was bigger than the 4.5 percent decline
that had been expected.

Analysts blamed the bigger-than-expected slump on the turmoil that hit
credit markets and mortgage markets in August as worries increased
over rising mortgage foreclosures.

Those worries resulted in a drying up of the availability of so-called
jumbo mortgages, loans over $417,000, which are particularly important
in high-cost areas such as California.

"Mortgage problems were peaking back in August when many of the
September closings were being negotiated and that slowed sales notably
in higher priced areas that rely more on jumbo loans," said Lawrence
Yun, senior economist for the Realtors.

By region of the country sales were down 10 percent in the Northeast,
9.9 percent in the West, 7 percent in the Midwest and 6 percent in the
South.

The slowdown in sales meant that the inventory of unsold homes rose to
4.4 million units in September. At the September sales pace, it would
10.5 months to eliminate the overhang of unsold homes, a record length
of time.

Economists are worried that the huge levels of unsold existing and new
homes will put further downward pressure on prices.

Yun said that the price declines should be put into perspective in
that they are occurring after a five-year housing boom which pushed
prices up to record levels.

He forecast that prices will decline by about 1.5 percent this year.
That would be the first annual price decline on Realtors' records
going back four decades.

The troubles in housing have been a drag on overall economic growth,
increasing worries that the housing slump and related credit market
troubles could become so severe that they will push the country into a
recession.

However, many private economists believe that the Federal Reserve,
which cut a key interest rate for the first time in four years last
month, will continue cutting rates in a campaign to make sure that the
weakening economy does not tumble into a full-blown recession.

Analysts said the price declines will worsen in coming months until
inventories are reduced to more sustainable levels. Ian Shepherdson,
chief U.S. economist at High Frequency Economics, predicted that the
housing troubles will prompt the Fed to cut rates by a quarter-point
at its meeting next week.

"The housing crunch is accelerating. The Fed can't stand by and
watch," Shepherdson said.