Housing.

• Author: Fisher, Jeffrey D.

The big question as we approach the end of 2006 is whether the housing slump is over. Sales of new single-family homes rose 5.3 percent in September to a seasonally adjusted annual rate of 1.075 million units, according to figures released by the U.S. Commerce Department. The increase followed downward revisions to the sales rate for the previous three months, and the sales pace was down 14.2 percent from a year ago.

Total existing-home sales (including single-family, townhomes, condominiums, and co-ops) dipped 1.9 percent to a seasonally adjusted annual rate of 6.18 million units in September from a level of 6.30 million in August. This was 14.2 percent below the 7.20 million-unit pace in September 2005, which was the third strongest month on record.

The median price of new homes sold in September was $217,000, down almost 10 percent from a year earlier. This was the largest drop in thirty-five years and the median price for existing homes also fell.

For the third quarter as a whole, the Commerce Department reported that the median sales price was down by 1.7 percent on a year-over-year basis. There was a relatively rare year-over-year drop in median home prices with the September decline of 2.2 percent, the largest on record.

The supply of homes on the market is at its highest level in over thirteen years. The good news is that the number of homes on the market is starting to decline and home sales appear to be bottoming out with lower home prices. Recent declines in mortgage interest rates, reversing the trend of increasing rates, and a decline in energy prices have helped restore home buyer demand.

Existing-home sales are forecast to be fairly stable in the fourth quarter and sales for all of 2006 are expected to drop 8.9 percent to 6.45 million-still the third strongest year after consecutive records in 2004 and 2005. New-home sales are forecast to fall 17.3 percent this year to 1.06 million, the fourth highest year on record. Housing starts should be down 10.9 percent to 1.84 million in 2006.

With the recent correction in the market, the national median existing-home price is likely to rise 1.6 percent to $223,000 for all of 2006; it's anticipated that prices will remain slightly below year-ago levels before gaining positive traction in the first quarter of 2007. The median new-home price is projected to decline 0.2 percent--largely the result of builder price cuts to move unsold inventory.

The thirty-year fixed rate is hovering...