November 29, 2006 | posted by Michael Baxter in IABN |

Maybe then, the SS US economy, the unsinkable economy has just hit that iceberg.

According to The National Association of Realtors (NAR), the median price of existing US homes fell by 3.5 percent in the year to October, taking the average price to $221,000. It was the biggest fall ever recorded. The previous record was set in November 1990 when prices fell 2.1 percent.

The US property market appears to be about 18 months behind the UK market, and many are saying there will be no crash, just a soft landing. But remember, the US consumer is even more indebted than your average Brit, and therefore the chances of a crash would seem higher. Should this occur and the October annual fall becomes a pattern, then woe betide the US economy.

The October fall also shows a remarkable change. A year ago the median price of existing homes was up 16.8 percent.

Then again……

In the release produced by NAR for October, it was actually quite bullish. It said October 05 was a remarkably good month, seeing the fourth highest annual change ever, so the year on year figures are distorted by that exceptional period from 12 months ago. Prices are in fact unchanged from September, suggesting maybe the period of a falling market is already over.

Perhaps, for the underlying trend, we should look at sales, and here there was encouraging news. Total existing-home sales rose during the month, up 0.5 percent from September to a seasonally adjusted annual rate of 6.24 million units in October from an upwardly revised pace of 6.21 million in September.

David Lereah, NAR’s chief economist, said market fundamentals are improving. “The present level of home sales demonstrates some confidence in the market, but sales are lower than sustainable due to psychological factors. The demographics of our growing population, historically low and declining mortgage interest rates, and healthy job creation mean the wherewithal is there to buy homes in most of the country, but many buyers remain on the sidelines. After a period of price adjustment, we’ll see more confidence in the market and a lift to home sales should be apparent in the first quarter of 2007.”

NAR may be right to have this optimistic view. Take into account, however, that a year ago sales activity was 11.5 percent up on the level seen in the month just gone. So while sales may have seen a mild pick up in October, they are still a long way short of where they should be.

Still, from a Brit’s point of view, an average price of $221,000 feels remarkably cheap, that’s almost half the level seen in the UK.