From the Wall Street Journal:

With Buyers Sidelined, Home Prices Slide
Tighter Credit, Anticipation of Further Declines Add To Worst Glut Since Late ’80s; the Foreclosure ‘Fear Factor’
By JAMES R. HAGERTY
October 25, 2007; Page D1

So many houses. So few buyers.

Home builders are slashing prices, often by more than 10%. Some people who list their homes on Craigslist.org admit they are “desperate” to sell. Inventories of unsold homes are at the highest level in nearly two decades, providing plenty of choices.

Yet a severe tightening of credit by mortgage lenders is keeping many buyers out of the market, while the huge supplies of homes for sale have persuaded others that they can wait for further price cuts.

The National Association of Realtors reported yesterday that sales of previously occupied homes in September dropped 19% from the same month a year ago to a seasonally adjusted annual rate of 5.04 million units. The trade group blamed disruptions in the mortgage market.

Meanwhile, The Wall Street Journal’s quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling and overdue loan payments are piling up. (See chart)

Some forecasters now warn that home prices are unlikely to start rising in most of the country before 2009 or 2010. A year ago, many home builders and lenders still thought that the housing boom — which more than doubled prices in some areas during the first half of this decade — would end with a gentle landing. Now those hopes are dead.

“Everybody’s kind of at a stalemate now, waiting to see what happens next,” says Donna Butera, who has a business in Phoenix “staging” homes for sale, adding furniture and other decorative touches to make them more appealing. Ms. Butera and her husband, Mark, are trying to sell six homes in Phoenix and Scottsdale. They bought the properties as investments over the past few years, but now find that the rents they collect don’t cover mortgage payments that are resetting to higher levels after initial low-cost periods of a year or two.
…
Even so, home sales are likely to remain weak for months because lenders are still very cautious and huge supplies of homes are weighing on prices. On a national basis, the number of previously owned homes listed for sale is enough to last about 10.5 months at the current sales rate, the NAR said. The supply of detached single-family homes, at 10.2 months, is the highest since February 1988. Supplies hovered around four to five months for the first half of this decade. When the figure is longer than six months, it is considered a buyer’s market.

Inventory figures reported by Realtors probably understate supply because not all foreclosed homes are sold through real-estate agents, says Doug Duncan, chief economist at the Mortgage Bankers Association.
…
House prices, as measured by the S&P/Case-Shiller national index, are likely to fall about 7% this year and a similar amount in 2008, says Jan Hatzius, chief U.S. economist at Goldman Sachs in New York. He believes a further small decline is likely in 2009. Of course, house-price movements vary greatly around the country and even within metro areas; in some desirable locations with limited supply, prices are likely to keep rising.
…
Foreclosure headlines create a “fear factor” among buyers and prompt more to think they should wait before taking the plunge, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. He believes the typical home price in New Jersey will fall about 7% this year, after dropping 8% in 2006. He expects a further decline in 2008. But, he says, “when houses are priced right, they’re selling very quickly.”