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Home Sales Slow for Fifth Month in a Row

by Adam Price |
March 10, 2006
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San Jose, CA - Sales of existing homes slowed in January for the fifth month in a row, while inventories of unsold homes rose to levels not seen in years. The biggest drops took place in the hot markets of California, south Florida and Massachusetts, all of which saw sales of existing homes fall more than 20% from a year earlier.

The slowdown in home sales is leading to cutbacks in construction, real estate and mortgage finance, which have created one-third of new jobs since the recession ended four years ago. Slower sales are also slowing the rapid rise in home prices and some areas such as Massachusetts are already seeing prices drop. Lower home prices will undermine the boom in mortgage refinancing that has allowed many homeowners to borrow and spend hundreds of billions of dollars each year. With consumer spending making up more than 70% of total spending, a slowdown in mortgage refinancing, combined with fewer housing-related jobs, could aggravate underlying weaknesses in the economy, leading to a recession.

Oppressed nationalities are already feeling the impact of the slowing housing market. Blacks and Latinos are two to three times more likely than whites to have high-interest, so-called ‘subprime’ mortgages. The percentage of homeowners in oppressed nationality communities who are lose their homes after falling behind on their mortgage payments is two to three times what it was ten years ago. This increase in foreclosures and forced sales can further push home prices down and worsen the economy.