Enormous amount of unsold Homes = Falling Prices!

by braddhesi

Home sales rise in the spring as buyers rushed to take advantage of tax credits worth as much as $8,000. To qualify, buyers had to sign purchase contracts by April 30.

Newly signed contracts plunged by 30% in May from the previous month, when the tax credit expired.

Sales fell in most parts of the country in June and existing-home sales were down by 9.3% in the West, the largest regional drop.

“We’ve been adding more inventory than we’ve been selling… That’s a worrisome sign in a month when we were paying people to buy homes,”

Inventories are expected to grow in the coming months as banks process more foreclosures, which have been held off the market as banks work to complete government-mandated loan modifications.

Now, “rising inventory is going to make everything much worse,” said John Burns, a housing consultant based in Irvine, Calif.

“Excess inventories are the mortal enemies of prices. Inventories go up and prices have got to go down,” said Gary Shilling, president of A. Gary Shilling & Co., an economic-consulting and financial-advisory firm.

Unsold homes are also growing as signs of home-price stabilization in some markets have encouraged homeowners to test the market. Karen Wiese moved into her current home in Fair Oaks, Calif., five years ago after she and her husband, a homebuilder, decided to live in it rather than sell for less than the $1.1 million asking price.

On Wednesday, she listed the six-bedroom home for $639,000.

“We don’t even know if we’ll get a looker,” she said. Ms. Wiese, 59, is building a smaller home on an adjacent lot and said she wants to downsize because her husband died last year.”

One bright spot: falling mortgage rates, which continue to serve as one strong tailwind for the market.