California Home Prices Drop Record 41% in August Amid Defaults

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California Home Prices Drop Record 41% in August Amid Defaults

By Dan Levy

Sept. 25 (Bloomberg) -- California home prices tumbled a record 41 percent in August from a year earlier as foreclosure sales pushed down values in the biggest U.S. state.

The median price of an existing, single-family detached home fell to $350,140 and will likely fall further, the Los Angeles- based California Association of Realtors said today in a report. Sales increased 56.7 percent from August 2007 and 1.8 percent from July.

``While sales appear to have turned the corner, the median will experience additional downward pressure as we move into the off-peak season in the coming months, and will continue to face pressure from distressed sales,'' Leslie Appleton-Young, vice president and chief economist of the association, said in a statement.

More than 101,000 California households received a default notice, were warned of a pending auction or foreclosed on last month, RealtyTrac Inc., a seller of default data, said on Sept. 12. That was a third of the nation's total and represented one in 130 homes in the state.

Eight of the 10 metropolitan areas with the highest foreclosure rates are in California, led by Stockton in first place, according to RealtyTrac. Merced, Modesto, Vallejo-Fairfield and Riverside-San Bernardino ranked second through fifth. Bakersfield, Salinas-Monterey and Sacramento ranked eighth through tenth.

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U.S. Economy: Home Sales, Durable Goods Orders Drop (Update1)

By Bob Willis and Timothy R. Homan

Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday.

Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent.

The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has ``decelerated broadly,'' feeding speculation that the Fed will lower interest rates by year-end.

Today's reports are ``a recipe for recession,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. ``The housing market is weak, consumer spending is weak, and we're facing weaker corporate spending.''

Following the report on durable goods orders, economists at Morgan Stanley in New York cut their forecast for third-quarter economic growth in half, to a 0.5 percent annual pace, on expectations that business investment would drop more than previously estimated.

Stocks Higher

Stocks rose on speculation that Congress will reach agreement on a $700 billion fund to take devalued assets off banks' books, alleviating the credit crisis and helping avert a long recession. The Standard & Poor's 500 index was up 2 percent to 1209.5 as of 11:54 a.m. in New York.

Bernanke yesterday called for quick passage of the package, saying the country faces ``grave threats'' to financial stability and warned the crisis is hurting business and consumer spending.

Another report today showed first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.

The financial meltdown and the broader economic slowdown prompted General Electric Co., whose businesses reflect a swath of the economy from jet engines to financial services, to lower its profit forecast for the second time this year and suspend its stock buyback.

Economists' Forecast

Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000.

The home-sales report showed the median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004.

Sales of new homes were down 35 percent from August 2007, the Commerce report showed.

While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months.

Timely Indicator

While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday.

Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week.

New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed.

Lennar's Loss

Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks.

``Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said.

The durable-goods orders report showed bookings for non- defense capital goods excluding aircraft, a measure of future business investment, dropped 2 percent after a 0.4 percent increase in July that was smaller than previously estimated. The decline last month was the biggest since January 2007. Shipments of those items, used in calculating gross domestic product, fell 1.7 percent.

Bookings for transportation equipment dropped 8.9 percent, today's report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007.

Boeing Co., the world's second-largest commercial planemaker, may have to provide more financing for its customers and may see more cancellations because of the spreading financial turmoil, Chief Executive Officer Jim McNerney said yesterday.

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