Plenty of ‘For Sale’ signs but not many sales

updated 1:45 p.m. ET May 26, 2008

WASHINGTON - Like spring flowers, the "For Sale" signs are sprouting in front yards all over the country. But anxious sellers are facing the most brutal environment in decades, with a slumping economy, falling home prices and rising mortgage foreclosures.

And even the faint promise of better days ahead might not come true, given all the headwinds the housing industry is facing at the moment.

"This is going to be another difficult spring," said Mark Zandi, chief economist at Moody's Economy.com. "I think we are at the beginning of the end of the housing downturn, but it is going to be a long and painful end."

The devastation is certainly a far cry from the boom years from 2001 to 2005 when sales of new and existing homes were setting records for five straight years. During that time, home prices were soaring, luring thousands of investors into the market, hoping to buy homes and flip them for quick profit.

But since 2006, the country has been mired in a housing bust which, in many ways, is the worst since World War II.

Construction is expected to drop to the slowest pace since the 1940s and prices are expected to decline by the largest amount since the Great Depression.

Hardest hit are the states where sales boomed the most: California, Florida, Nevada, Arizona and parts of the Northeast. In the Midwest, the problem is shrinking jobs in the auto industry, making homes hard to sell. But virtually all of the country has felt the aftershocks of the housing slump, either through weaker home sales or the massive drag housing has imposed on the overall economy.

Housing has shaved more than a full percentage point off economic growth, trimming the gross domestic product for the past two quarters to a barely discernible 0.6 percent rate and raising the threat that the country could topple into a full-blown recession.

The National Association of Realtors reported that 46 states saw sales decline in the first three months of this year compared with the same period in 2007. Two-thirds of 149 metropolitan areas saw prices decline during the same period, the largest percentage of cities reporting price drops in the history of the NAR survey, which goes back to 1979.

The state with the biggest sales decline was Maryland, with sales down 38.6 percent in the first three months of this year compared with the same period in 2007. The drop nationwide was 22.2 percent.

The price decline nationally was 7.7 percent in the first quarter, with the biggest plunge a 29.2 percent decline in the Sacramento, Calif., area.

As the spring sales season got under way, the slump was continuing. The Realtors reported Friday that existing home sales fell 1 percent in April, the eighth drop in the past nine months, with the median home price falling 8 percent compared with a year ago, the second-biggest drop on record.

So just how much worse will things get?

MORE FROM REAL ESTATE

Real estate Section Front

New-home sales rise to highest level in a year Rates on 30-year loans match record low Report: Almost 1 in 4 borrowers underwater Home sales rise to highest level in 2.5 years Real estate agents see return of foreign buyers Forbes: World's most expensive homes Replacing a real estate agent with a Web site Mortgage delinquencies hit record high Housing starts drop 10.6 percent in October Beazer Homes CEO could face civil charges Real estate Section Front   Add Real estate headlines to your news reader: