The National Association of Realtors reported Monday that sales of existing homes and condominiums declined by 2.7 percent last month to a seasonally adjusted annual rate of 7.09 million units. The decline would have been an even larger 3.2 percent without a spurt in sales in areas where people displaced by the Gulf Coast hurricanes have moved.
The decline in sales pushed the number of unsold homes to 2.87 million, the highest level in more than 19 years. It would take 4.9 months to deplete that inventory level at the current sales pace.
Even with the decline in sales, the median price of an existing homes sold last month rose by 16.6 percent to $218,000 compared to the median — or midpoint — price in October 2004.
"This signals that the housing sector has likely passed its peak. The boom is winding down to an expansion," said David Lereah, chief economist for the Realtors.
The weakness in existing home sales followed an earlier report that construction of new homes and apartments fell by 5.6 percent in October, the biggest setback in seven months. Applications for new building permits, a good sign of future activity, fell by 6.7 percent the biggest decline in six years.
The 2.7 percent drop in sales of existing homes would have been a larger 3.2 percent decline without a boost in activity from people relocating after hurricanes Katrina and Rita devastated the Gulf Coast. The boost in sales outside of the hurricane areas offset sales declines in cities hardest hit by the storms.
Sales surged by 83 percent in Baton Rouge, La.; 32 percent in Mobile, Ala., and 14 percent in Houston. By contrast, sales were down 42 percent in New Orleans and 44 percent in Beaumont, Texas.
Lereah predicted that housing activity would cool further in coming months if, as expected, the Federal Reserve keeps pushing interest rates higher to combat rising inflation pressures that have been triggered by a surge in energy prices.
Those price increases have contributed to a rise in mortgage rates although rates retreated a bit last week to 6.28 percent from 6.37 percent the previous week, which had been the highest level in two years.
"We feel confident that housing is landing softly as rates continue to rise," Lereah said.
Some economists had expressed fears that rising mortgage rates could burst the housing bubble much as a speculative bubble in Internet stock prices burst in early 2000, sending shockwaves throughout the economy.
The 16.6 percent increase in the median sales price was the biggest year-over-year price increase since a 17.2 percent jump in July 1979.
By region of the country, the biggest sales decline in October occurred in the Northeast, a drop of 7.4 percent. Sales were down 1.9 percent in the Midwest and 1.2 percent in the West. Sales were down 1.8 percent in the South despite the big gains in areas where displaced homeowners relocated.