May home sales in Chicago down almost 21%

Home sales in the Chicago area plummeted 20.7% last month compared with May 2006, according to the Illinois Assn. of Realtors.

A total of 9,750 single-family homes and condominiums were sold in the nine-county Chicago area last month, with the median home price rising 1.2% from the year-earlier period to $252,388. The biggest drop in sales last month occurred in outlying DeKalb, Grundy and McHenry counties. Sales in Cook County fell 20.1%.

Through May, sales in the nine-county area were down 17.4% from last year to 38,423, according to the association.

The home-sales figures were more grim nationwide.

Sales of existing homes fell in May to the lowest level in four years while the median home price dropped for a record 10th consecutive month.

The National Assn. of Realtors reported that sales of existing single-family homes and condominiums dropped by 0.3% to 5.99 million in May, the slowest sales pace since June of 2003.

The median price of a home sold last month dropped to $223,700, down 2.1% from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch of weakness on record.

The sales decline reflected weakness in the South, where sales dropped by 3.4%, and the West, where sales were down by 0.8%. Sales actually showed strength in the Northeast, rising by 5.8%, and the Midwest, where they were up 0.7%. In a troubling sign for the future, the inventory of unsold homes rose by 5% to 4.43 million units in May, a level that would take 8.9 months to clear out at the May sales pace. That is the highest inventory level since the last deep slump in housing in 1992.

Analysts said housing is being hurt by high inventories and the recent crisis in subprime mortgages, which has caused lenders to tighten their standards, making it harder for potential buyers to qualify for loans.

They said all of the housing troubles seem to be causing a crisis in confidence, making people delay decisions to buy homes.

"I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers," said Lawrence Yun, senior economist with the Realtors.

The current slump in housing is the worst since the 1989-92 downturn. It is occurring after a prolonged boom that saw sales of new and existing homes set new records for five consecutive years.

Analysts believe that the median home price, the midpoint where half the homes sold for more and half for less, will continue falling until builders move further to cut back on production of new homes coming on the market.

The Realtors are predicting that the median home price will decline by 1.3% this year while sales are forecast to drop by 4.6%. It would be the first annual price decline in four decades of record-keeping.

Another potential problem is mortgage rates, which have been trending higher in recent weeks although they still remain below their historical averages.

According to Freddie Mac, the average commitment rate for 30-year mortgages was 6.26% in May, up from 6.18% in April.

(From AP, staff)