WASHINGTON - Hit by a severe credit crunch, existing home sales fell for the eighth straight month with median home prices dropping by a record amount.
The National Association of Realtors reported yesterday that sales of existing homes dropped by 1.2 percent last month to a seasonally adjusted annual rate of 4.97 million units. That represented the slowest sales pace on record going back to 1999 and was 20.7 percent below activity a year ago.
The median price of a home sold last month, the point where half the homes sold for more and half for less, declined to $207,800, a drop of 5.1 percent from a year ago, the biggest year-over-year price decline on record.
The October weakness was blamed on the fallout from a serious credit crunch that roiled financial markets in August. Banks and other lenders have tightened credit standards in response to a soaring level of defaults, especially on subprime mortgages - loans provided to borrowers with weak credit histories.
Analysts predicted prices will have to drop further to work down historic levels of unsold homes and the slump in housing, already the most severe in more than two decades, could last for another year.
Wall Street, however, took the latest bad news on housing in stride, preferring to focus instead on comments from Federal Reserve vice chairman Donald Kohn that were interpreted as offering the hope of further Fed rate cuts.
Kohn said the central bank would need to be "nimble" in setting monetary policy.
In another sign of spreading economic weakness, the Commerce Department said orders to factories for big-ticket manufactured goods declined by 0.4 percent in October.
Especially troubling was the fact that the category which represents business investment plans dropped by 2.3 percent, the biggest setback since last February. Economists had been hoping that business investment spending would cushion some of the impact from the housing slump.
With home sales falling, the inventory of unsold homes rose by 1.9 percent to 4.45 million units.
Analysts said the backlog was about double what it is during normal times and would likely rise further as a rising mortgage defaults in coming months dump more homes on the already glutted market.
Patrick Newport, an economist at Global Insight, predicted that home sales could decline another 10 percent from the current depressed levels by mid-2008. He said by that time he believes home prices will have fallen sufficiently to trigger a sales rebound.
By region of the country, existing home sales were unchanged in the Northeast and the South and down by 1.7 percent in the Midwest and 4.4 percent in the West.
While economic growth roared ahead at a rate approaching 5 percent in the summer, many economists believe growth has slowed dramatically in the current quarter from the combined blows of the most severe housing slump in more than two decades, the credit crunch, and rising energy prices.
The government will release its latest look at overall economic activity today.