If the remedy for America's housing crisis is a big enough drop in prices to stimulate the real estate demand, the market got a big dose of over the counter and under the counter medicine on Tuesday.
The National Association of Realtors reported a much worse-than-expected 2.0% drop in sales of single-family homes and condos in March, compared with February, to a seasonally adjusted yearly rate of 4.93 million units. That was 19.3% under the year-ago level. The middle price of an American home sold last month dropped to $200,700, a decline of 7.7% from the middle price a year ago.
Joseph A. LaVorgna, a chief economist at Standard & Poor's, said in a note to investors yesterday that falling home prices are not such a bad thing, "On one hand they are causing negative wealth effects and forcing some new mortgages underwater; but on the other hand, this is a necessary, albeit unpleasant, prescription for restimulating housing demand," he said.
Sales were expected to drop another 1.6% to a seasonally adjusted annual rate of 4.95 million units, down from 5.03 million in February, according to the last forecast of Wall Street economists surveyed by Thomson Financial.
On a personal note, I wonder if M. LaVorgna owns a house (or a condo)? How happy would he be if he learned that the value of his home dropped 40% just before he wanted to sell it? How many foreclosures can we have?
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