Is it really correct to call falling housing prices a "correction"? It would be hard to argue that people who paid more than they can sell their houses for now didn't pay market value at the time. They'd hate to think of themselves as incorrect about buying.
Meanwhile, 2006 was the year of the "soft landing," or the "crash" that never happened, although some areas did go through substantial pain as the pace of home sales and prices reset from record highs in 2005.
There was no appreciation in December as median home prices stuck at $222,000, unchanged from December 2005, but for all of 2006, the median price increased an anemic 1.1 percent to $222,000, from a median price of $219,600 in 2005.
That said, existing-home sales had a charley horse, but still managed to cross the finish line with the third-best record in sales ever, according to the National Association of Realtors®. Sales were off 7.9 percent in December from 2005, but the year finished down by only 8.4 percent, thanks to a much faster sales pace early in the year.
David Lereah, NAR's chief economist, said, "It looks like we're moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers. In addition, a tightening inventory of homes on the market is supporting prices."
Housing supplies have improved for sellers now looking for some positive momentum as they gear up for the spring market -- housing's at a 6.8 month supply in December, down from a 7.3-month supply in November.
New homes fared a little better in December. Sales of new single-family homes rose 4.8 percent to a seasonally adjusted annual rate of 1.12 million units in December, according to figures released by the U.S. Commerce Department last week.
Sales for 2006 were precipitously lower in 2006. At 1.061 million units sold, this was a 17.3 percent drop from the all-time high achieved in 2005, and the sharpest percentage decline since 1990.
The good news there is that the housing industry can work quickly to slow inventory production and to sell excess inventory with incentives.
"The stabilization of home sales and housing demand that we are now seeing is the first step required to put the housing market back on track," said NAHB Chief Economist David Seiders. "The second step is to whittle down the inventory overhang, which builders have been doing since July, and the final step will be to bring housing starts back up to sustainable levels. We anticipate that starts will bottom out in the first quarter of this year and that residential construction activity will be moving up by the second half of 2007."
Like existing homes, the inventory of new homes for sale hit a 10-month low of 537,000 units in December, equivalent to a 5.9-month supply at the current sales price which is down from the high of 7.2-month supply set in July 2005.
