U.S. Homes Sales Hit Slowest Pace in More Than a Decade

According to a report released today by the National Association of Realtors, U.S. homes sold at the slowest pace in over ten years in the first month of 2009. Sales were down 8.6% since January of 2008.

The western states, including California, experienced the best January sales rate. The rate at which homes located in the western United States sold in January was flat: no change from the year before. The midwestern and southern states saw a drop in sales of 5.8%, with the worst drop occuring on the northeast, which saw sales fall 14.7%.

December had shown a slight improvement in sales in some parts of the United States, but analysts believe that with so much discussion of Barack Obama's economic stimulus package in the media in January, buyers were waiting out the month to see what kinds of incentives would be included if and when the bill passed.

Obama's plan to restructure some subprime mortgages (announced just in the past week) is not part of the stimulus bill, but belongs to a separate government initiative aimed at stabilizing the banks and the housing market. The full plan is to be revealed in the course of the coming weeks, making it likely that February will be another rough month for homes sales  in the U.S. as buyers and investors once again wait to see what the government will do.

Federal Reserve Chairman Benjamin Bernanke was once again out in front of cameras this week suggesting that reducing the principal financed on subprime mortgages as well as some 'upside down' conventional mortgages, might be a component of future mortgage restructuring programs. Banks are not anxious to reduce the principal on mortgages that exceed the current value of homes because of their own fragile balance sheets and the losses they would have to declare were they to take such measures.

This 606 square foot co-op in a San Francisco CA rowhouse is listed at $256,000. Many analysts believe California real estate still has a long way to fall before stabilizing.

The problem with sluggish home sales in recent months has not been the difficulty of finding financing for potential home buyers and investors. Although it is definitely harder to get a mortgage than it was during the craziest part of the bubble, the deeper (and continuing) problem is the widespread perception that U.S. housing prices are not done falling. No one wants to buy a home that is going to be worth 10% less in 2010.

The perception that prices still have quite a ways to fall in the months ahead is probably accurate. Once prices do bottom out, the market is likely to look very different. That's because the United States is currently undergoing massive changes in terms of its economic centers, jobs available, energy costs and availability, city budgets and taxes, state finances, available infrastructure: In fact, all the most basic elements that keep a culture stable are in the process of deteriorating and/or being rebuilt as housing prices fall.

All of which can and should make foreign investors looking at the U.S. housing market pause and ask questions before jumping in. Where will the new centers of U.S. commerce and manufacturing be located? What alternative energy products and resources will 'take off' and become profitable? Which cities are in such bad shape that recovery may take decades or never come? The answers to these and other important questions will mean the difference between a profitable real estate investment and a huge, costly headache.

Not that great deals aren't out there. They are. Where in the world can you purchase a home with running water and electricity for under $10,000? In many U.S. markets this is not only possible, it is crucially needed. Some cities have such a huge backlog of tax sale properties that it takes up to a year from the time of seizure until the actual auction occurs. But having purchased a four figure home, then what?

Without a plan to rehab and live in the home or rent it profitably and safely for years to come, the foreign investor could easily be stuck with a 'deal' that turns into a crumbling, vacant curse.

So buyers are still hanging back. Good to know. Proceed with great caution.