“Prices have to continue to fall to deplete a bloated inventory”

From Bloomberg:

Home sales, prices decline nationwide

Home prices fell in more than one-third of US cities last quarter as stricter lending standards caused a 14 percent decline in sales nationwide.

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Prices dropped in 54 of 150 metropolitan areas in the third quarter, and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said yesterday. Home sales, including single-family properties and condominiums, slid to 5.42 million at an annualized pace from 6.29 million a year ago.

Declines in sales and prices signal the housing slump that began in 2006 may extend to a third year, matching the slowdown 18 years ago that ended in the 1991 recession. The housing decline will reduce gross domestic product growth to 2.1 percent in 2007 from 2.9 percent a year ago, according to Lawrence Yun, an economist for the realtors group.

“Prices have to continue to fall to deplete a bloated inventory,” said Richard Yamarone, chief economist at Argus Research Corp. in New York. “The only surprise in housing would be if we didn’t see the slump extend into 2008.”

Ninety-three US cities had price gains and three were unchanged from a year ago, according to the report.

The US median home price, the point at which half the homes sold for more and half for less, was $220,800 in the third quarter, down from $225,300 a year ago, the association said. In the second quarter, prices fell in 50 of 149 cities and the national median fell 1.5 percent.
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The collapse of the market for bonds backed by mortgages has spurred US banks to take more than $45 billion in write-downs and tighten their lending standards. Fewer mortgages and falling prices have made it harder to refinance or sell.

About 40 percent of US lenders have raised their standards on mortgages for prime borrowers, their most creditworthy customers, according to a Federal Reserve survey this month. In a July survey, 15 percent reported raising standards for prime borrowers.

About 60 percent of lenders who give nontraditional loans, which include interest-only mortgages, reported stricter lending standards, up from 40 percent in July, the Federal Reserve said.