Painful reality: Home sales in a slump with no end in sight

Today's headline that Neumann Homes is filing for Chapter 11 Bankruptcy protection is quite a shock. It can't be totally unexpected, however.

Neumann Homes is the fourth-largest home builder in northern Illinois, and the 59th largest in the U.S. On Monday, Neumann closed all of its sales, production and customer service offices and laid off most of its 600 employees. Neumann is developing 15 subdivisions in Illinois. The company is trying to arrange for the completion of homes already under construction and promised to refund earnest money deposits on homes not yet started.

Your guides could not have predicted this outcome for Neumann Homes, but it seemed inevitable that one, if not more, home builders would meet this unfortunate fate.

Recent statistics show that new home sales are down anywhere from 30% to 40% in different suburbs. In the city of Chicago, sales of existing homes fell 36% in August from a year ago, and the stats for September are equally dismal.

Residential sales for the third quarter, 2007, are down 34% from the year-ago period, according to Schaumburg-based Tracy Cross & Associates Inc. On a seasonally adjusted, annualized basis, sales totaled 15,296 units, down 40% from last year and their lowest level since 1994.

Though the downturn is deeper and longer than most observers expected, sales are so low that they can’t drop much further, Mr. Cross says. Only 77 of the 817 condo and townhome developments the firm tracks had eight or more sales during the quarter, and 327 either logged no sales at all or suffered a net loss of sales as buyers canceled their contracts.

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Update on Thursday: Figures released by the National Association of Realtors show a 7 percent decline in the number of home sales from August to September in the midwest region. Slow sales have caused a 4 percent decline in prices in the same short period of time.

And from a study undertaken by the Illinois Association of Realtors and the University of Illinois:

Over the last three months, the Illinois housing market has witnessed an increasingly sharp decrease in sales compared to the same month a year ago, culminating on a drop of almost 23% for September 2007 sales compared to September 2006. For the Chicago metropolitan economy, the decreases have been even larger; the September decline was 27%. On a month to month basis, the declines are 27% for Illinois and 30% for Chicago.