Housing bubble bursts as market dwindles.

In response to the fifth consecutive monthly fall in home sales in August, the annual existing home prices in the U.S. exhibited a down trend for the first time in 11 years, a U.S. realtors group revealed on Monday.

The fifth straight monthly decline has left sales 12.6 percent below previous year figures thus showing a downtrend to once glittering housing fortunes.

Describing the housing market scene as tense, Joel Naroff, chief economist at Naroff Economic Advisors said, "Pop goes the housing bubble.” He predicts farther decline in home prices as home sellers struggle due to increased supply of unsold houses.

On one hand, where the existing-home sales slipped to an annual rate of 6.30 million units from a 6.33 million unit pace in July, the slowdown in sales rose the inventory of unsold homes to a record 3.92 million units by the end of August.

According to The National Association of Realtors, the housing inventory levels rose by 1.5 per cent to a 7.5 month supply at the current sales pace, the highest since April 1993. These figures stood at 6.3 months supply in July this year and at 4.7 months supply in August 2005. The existing home sales account for about 85 per cent of the housing market.

The slowdown in the housing market led to a 1.7 percent drop in average cost of existing property from previous year. The average cost now stands at $225,000 (£176,000).

Reacting to the recent pause in interest rate hike by the Federal Bank, Michael Kastner, head of fixed income at SterlingStamos said, “Housing is in trouble, the economy is a lot weaker than people think and the Fed will ease policy much faster than what is currently priced by markets.” He indicated that the latest numbers suggest that the central bank may soon start lowering the rates.

Sounding positive regarding the dramatic turnaround in housing market, David Lereah, chief economist for the Realtors said, “This is the price correction we've been expecting, With sales stabilizing, we should go back to positive price growth early next year.”