Housing bubble peaks as 28 states see decline in home sales

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The National Association of Realtors reported Tuesday that sales of existing homes were at a record 7.193 million units in the spring of 2005, but that number plummeted by 7.5 percent to 6.693 million units during the April-June quarter of 2006. Some of the biggest drops came in former property hotspots like Arizona, Florida and California.

According to the survey, Arizona showed a 26.9 percent sales decline, Florida suffered a 26.7 percent drop, California saw a 25.3 percent drop, and sales fell 23.9 percent in Virginia and 23.5 percent in Nevada.

This is not the only sign that the housing bubble is set to burst, according to the National Association of Home Builders. The association blamed the drop -- the seventh consecutive decline in the index -- on apprehension among homebuilders about increased cancellations of new home contracts as well as record levels of unsold new and existing homes.

The unrest in the market comes as once-low mortgage rates climbed for the better part of 2006, a result of the Federal Reserve raising interest rates to slow the economy and control inflation. Interest rates were not raised last week, which has elicited hope among market investors that the rate hikes ended before they can do any more damage to the housing economy.

However, David Seiders, chief economist for the Home Builders Association, said the overall sales slide would probably continue for several more months before stabilizing, and added that last year's record breaking single-family home sales were likely to drop by about 12.8 percent this year.

Mark Zandi, chief economist at Moody's Economy.com, said that housing prices would probably continue to decline as fewer people attempted to make a quick buck in the housing market, but warned that the currently steady decline could suddenly pick up in pace.

"We could go from wild optimism to stark pessimism pretty quickly," he said. "As you get deeper into a correction, you begin to wonder whether things could get worse."

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