US Home Sales Continue to Decline as Housing Sector Remains Weak

By Barry Wood

Washington

09 May 2008

Home sales remain weak in the United States, a development some economists say will prolong the slowdown in economic growth that began last October. VOA's Barry Wood has more.

Treasury Secretary Henry Paulson said Thursday that the economy remains weak but that it should pick up in the second half of the year. He said consumers are being hit hard by higher costs for gasoline, food and health care.

The growth slowdown or possible recession is aggravated by the prolonged slump in housing. The National Association of Realtors reports that sales of existing homes fell again in March and are down 20 percent over the past year.

Zillow, a Seattle-based company that tracks home prices, says 50 percent of home-owners who bought at the top in the market in 2006 now have mortgages bigger than the current market value of their home, meaning they have negative equity. The median price of an existing home in the United States fell 10 percent in 2007.

Economist Mark Zandi says the nearly nine million homeowners with negative equity are particularly vulnerable in this weak economy. "These folks are in big negative equity positions. If there is any disruption to their income at all, they have a major problem. And disruption to income doesn't mean what it used to. Disruption to income ten years ago meant death, divorce or major disability. Disruption of income now means, well, I have to replace two tires (on my car), or my water heater broke," he said.

Alan Meltzer, a professor at Carnegie Mellon University, says it is hard to predict how homeowners with negative equity in their principal asset-their home-will adjust their spending. "The people who see the value of their houses go down, do they assume that they are going to stay down? Or, do they assume that they never should have risen as much? And therefore they are not going to allow their long-term (spending) behavior to be affected?," he said.

Desmond Lachman, an economist at Washington's American Enterprise Institute, believes home prices will fall by another 10 to 15 percent this year. Mainly because of the housing slump, Lachman believes the US economy will register negative growth this year.

"Cumulatively, we're going to see gross domestic product-I think the International Monetary Fund forecast is pretty accurate-in that we'll see G.D.P. (Gross Domestic Product) decline by something like three quarters of a point (percent, this year)," he said.

The Bush administration predicts modest growth of about one percent for 2008. The ongoing housing slump is the most serious to confront the US economy in past 30 years.