August record decline in home prices attracted buyers in some areas and made the inventory of unsold home drop according to the National Association of Realtors. The median sales price fell 9.5 percent to $203,100. This is the largest price drop on records since 1999. As prices fall, buyers are taking advantage of steep discounts, especially in hard-hit markets where price drop were enormous like California, Nevada and Florida.

The inventory of unsold homes fell 7 percent to 4.3 million, down from the all-time record of 4.6 million in July. That’s a 10.4-month supply at the current sales pace. According to the trade group’s chief economist, Lawrence Yun, he hopes the downward trend in inventories continues because, “home prices will not stabilize as long as inventories remain high.” Inventories have been driven higher by a massive wave of mortgage foreclosures, especially on risky loans.

Existing home sales fell in August to a seasonally adjusted rate of 4.91 million units, down 2.2 percent from an upwardly revised pace of 5.02 million in July. Sales were down almost 11 percent from August last year. Without adjusting for seasonal factors, sales were down 15 percent from year-ago levels. While buyers are pouncing on lower prices — especially in places like California, Florida and Nevada — sales are sluggish in formerly stable markets like the Pacific Northwest and Charlotte, N.C., Yun said.

The rate of home sales fell from July to August in the Northeast and West, which posted 6.6 percent and 5.3 percent sales declines, respectively. Sales rose by less than 1 percent from July to August in both the Midwest and South.

Home prices in July fell a record low 5.3 percent compared same month last year. Prices went down 0.6 percent from June level and have ebbed to October 2005 levels. This was according to the Federal Housing Finance Agency.

Declines in home values nationwide together with the lapses in lending standards during the real estate boom are behind the continuing rise of mortgage defaults and foreclosures.

James Lockhart, the housing agency’s director, suggested Tuesday that government sponsored mortgage finance giants Fannie Mae and Freddie Mac loosen their lending standards to help more homebuyers qualify for a loan and stabilize the market. The government took control of Fannie and Freddie earlier this month.

Over the past year, the companies have tightened requirements and raised fees substantially, making it hard for borrowers with any blemish on their credit reports to qualify for a loan.

Also, more recent development was the Bush administration proposed $700 financial rescue package intended to help prevent the further credit crisis. The US government's financial bail out proposed by the President heated up in Congress Tuesday, with top finance officials urging its swift passage and lawmakers digging in their heels.

Housing markets finally looked like they might be stabilizing when the crisis on Wall Street hit last week, shattering many home buyers' resolve.

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.78 percent with an average 0.6 point for the week ending September 18, 2008, down from last week when it averaged 5.93 percent. Last year at this time, the 30-year FRM averaged 6.34 percent.

Rates on 30-year mortgages fell sharply again this week to its deepest in seven months, as rates continue to decline following the government's dramatic takeover of mortgage giants Fannie Mae and Freddie Mac. The last time the 30-year FRM was lower was the week ending February 14, 2008, when it averaged 5.72 percent.

The 15-year FRM this week averaged 5.35 percent with an average 0.6 point, down from last week when it averaged 5.54 percent. A year ago at this time, the 15-year FRM averaged 5.98 percent. The last time the 15-year FRM was lower was the week ending March 27, 2008, when it averaged 5.34 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.67 percent this week, with an average 0.7 point, down from last week when it averaged 5.87 percent. A year ago, the 5-year ARM averaged 6.21 percent.

One-year Treasury-indexed ARMs averaged 5.03 percent this week with an average 0.5 point, down from last week when it averaged 5.21 percent. At this time last year, the 1-year ARM averaged 5.65 percent.

"Interest rates for 30-year fixed-rate mortgages fell for the 5th consecutive week, amounting to a total decline of about 0.75 percentage points," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, mortgage applications surged nearly 58 percent since August 15th, largely led by a 122 percent gain in applications for refinancing, according to the Mortgage Bankers Association (MBA).

"The MBA also reports that fixed-rate mortgages are currently the predominant choice among homebuyers and families looking to refinance. Over the first two weeks of September, 95 percent of new applications were for fixed-rate mortgages. Since the end of 2007, the number of ARM applications fell by almost 50 percent."

source: Freddie Mac's Weekly Primary Mortgage Market Survey® (PMMS®), www.freddiemac.com

The Commerce Department reported Wednesday that construction of new homes and apartments fell to its lowest level in 17 years last month as building rate surprisingly dropped 6.2% to a seasonally adjusted annual rate of 895,000 units while building permits fall almost 9%.

This is the slowest since January 1991, a period of housing correction. The decline is larger than analysts’ expectation of 1.6% drop. The drop is evident in all the regions except the West. The sharpest drop in building activity was in the Northeast.

Construction dropped by 14.5% in the Northeast and declined 13.6% in the Midwest and 7.4% in the South.

The weakening economy resulted to 33.1% decline in construction activity compared to last year’s data.

Analysts believe that construction will continue falling for many more months as builders struggle to reduce the backlog of unsold new homes in a market that continues to slump.

Building permits, a measure of future activity, dropped 8.9% in August to an annual rate of 854,000 units.

For August, the 6.2% drop in housing construction reflected a 1.9% decline in single-family construction, which fell to an annual rate of 630,000 units. Construction of multifamily units fell by 15.1% to an annual rate of 265,000 units.

The housing slump has slowed down overall economic activity and forced country closer to an economic recession. Thousands of construction jobs have been lost, contributing to an economic downturn that has pushed the overall unemployment rate to a five-year high of 6.1% in August.

The National Association of Home Builders/Wells Fargo housing market index increased two points to 18 this month from July and August record lows of 16. With this, housing developers are becoming more confident and optimistic about their projections for the next six months.

The survey was taken in the first 10 days of September, and for the most part doesn't reflect the fall in mortgage rates since the government's takeover of mortgage finance companies Fannie Mae and Freddie Mac. It also doesn't take into consideration this week's Wall Street turmoil, which may cause the rates to go down as anxious investors look for safer havens like government bonds.

Immediately after the Fannie and Freddie seizure, "the positive impact on mortgage rates was probably not apparent to many builders," the trade group's chief economist, David Seiders, said in an interview.

Builders have faced falling home prices, rising foreclosures and an excessive inventory oversupply of unsold homes. But the industry is growing hopeful that consumers will finally take advantage of deeply discounted prices. New home sales likely will stabilize by year-end, Seiders predicts.

Another key reason for the more positive outlook is the temporary $7,500 tax credit for first-time homebuyers passed by Congress this summer. The credit basically works out to a 15-year, interest-free loan.

All three components of the index improved, with the largest gain in the index of builders' sales expectations over the next six months. That gauge rose by six points to 30.

The latest housing market index reflects a survey of 461 residential developers nationwide, tracking builders' perceptions of current market conditions and expectations for home sales over the next six months.

Index readings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006 and has been below 20 since April.