The newest U.S. real estate market has produced giant month-to-month and year-to-year sales declines while median home prices begin to head south as well.

Perhaps the most notable area in the country experiencing the largest slowing effect on its market is California, Southern California to be specific.

The October 13, 2006 article, “Southern California homes sell at slowest pace in 9 years,” posted on Inman news explains how major cities such as San Diego and Los Angeles are leading the way in the region’s market freefall.

“Home sales in Southern California dropped for the 10th consecutive month in September, while home-price appreciation slowed to a snail's pace, a real estate information service reported Thursday.”

“A total of 22,654 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month, down 11.6 percent from 25,628 in August, and down 28.6 percent from 31,740 for September a year ago, according to DataQuick Information Systems.”

Sales had been expected to increase, or at least decrease at a slower pace, due to the decline in median home prices. Even though this relation has not yet developed any positive sales indications, home prices continue to decline, which should create a chain effect.

“A decline from August to September is normal for the season, DataQuick reported, and last month's sales count was the lowest for any September since 1997 when 21,320 homes were sold. Since 1988, September sales have ranged from 12,838 in 1992 to 34,653 in 1988. The September average is 23,341, slightly above last month's sales.”

Many homeowners stand to make a profitable fortune from their initial purchase. But time will tell how many people overpaid for their home a year or two ago. As values depreciate, some unfortunate home owners may see up to a 20 percent decline in value.

“The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,309 last month, down from $2,339 the previous month, but up from $2,092 a year ago. Adjusted for inflation, current payments are about 2.3 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle.”

Inflation is preventing home prices and thus monthly mortgage payments from decreasing at a more rapid rate even though home values are declining. So, right now, the market is not really geared for action from either buyer or seller. As the end of the 2006 year nears, home prices may dip further in an attempt to generate a few sales from desperate sellers in search of immediate income for growing bills and Christmas funding.

“Indicators of market distress are still at a moderate level, according to DataQuick, as financing with adjustable-rate mortgages has trended lower over the past year. Foreclosure activity is rising but is still low in a historical context. Down-payment sizes are stable, as are flipping rates and non-owner occupied buying activity, DataQuick reported.”

Sales will continue to slow for at least a few more months, entering the New Year. As spring approaches the market will enter a critical phase that will determine if slowing trends will continue or if the air will breeze the market into its old form.