What can be the Effects of Falling Sales on Prices of Real Estate

Posted by Nick Niesen on November 8th, 2010

A market price of any product is determined by several factors. In real estate industry, the price of a house is always vulnerable to faltering financial conditions of the market. The housing sale is the most influencing factor in determining its price. In recent times, the wavering housing sale is being expected to leave a deep trace in housing price.

The recently published House Price Index report of Office of Federal Housing Enterprise Oversight (OFHEO), declares that there is price appreciation of 0.5% higher than the fourth quarter of the last year. This is recorded to be the lowest rate since 1998. The price appreciation comparison of this first quarter report of 2007 with the previous two-quarters' reports of 2006 shows poor record by 1.3%. Though at the beginning of 2007, the price was higher than the previous year by 4.3%, yet this comes out to be the lowest yearly comparison record since third quarter of 1997.

This appreciation record of HPI, when fed up with the information on home purchase and refinance, was turned out to be only 3% on quarter comparison between 2006 and 2007. The overall housing prices have arisen at the beginning of 2007, but it was the lowest rate in 10 years. The growth rate of the housing prices in the last year was faster than other non-housing materials and services by almost 3 points.

The existing home sales were down 2.6% in April, where new home sales jumped up several points. Prices rose slowly after May-June and inventories on the other hand decreased slightly. The national median existing home price was up by 0.3% from the last year. This was accompanied by the backlog clearance of unsold homes by 4.2% from previous months. Though the industry faced a slower sales rate, yet the inventory stayed on at 8.8 monthly supplies.

The threat of rising foreclosure, the bad market for the subprime borrowers, the declining rate of home sales and mixed information to the buyers became the reasons for the more decline in housing sales. In June 2007, there was a falling of housing inventory. It was supported by a noticeable rise of housing prices. This became the first instance in the last 11 months when the median home price grew higher than the previous year's.

The single-family home sales were fallen in June by 3.5% from May. This was also 12.1% lower than the 5.70 million-units level in the same time of the last year. On the other hand, the median of existing single-family home price was up 0.1% from 2006. Likewise, while the existing condominium and co-op sales were declined by 6.3%, the median sales price was up 2.6% from the previous year.

According to the National Association of Realtors, the housing price will be increased in the next year. This will be as a result of and accompanied by the rising of the real estate sales to almost 6.4 million in the next year. This year, it is estimated to be 6.1 million. While in the previous year, it was 6.5 million. Existing home prices are supposed to rise by 1.8% after this year's 1.4% fall. Also the new-home prices are presumed to gain 2.2% after this year's 2.6% fall.