New Home SalesCENSUS
1,051K
U.S. Housing Market · 2006
U.S. Housing Market in 2006
Existing SalesNAR
6.48M
Median PriceNAR
$221,900
30Y MortgagePMMS
6.41%
In 2006, the U.S. housing market recorded existing-home sales averaged 6.48 million, new-construction sales of 1,051K, and a 30-year fixed mortgage rate of 6.41%.
Existing-home sales fell 8.5% from 2005. the median existing-home price rose 1.3% to $221,900. the 30-year fixed mortgage rose 0.54 percentage points to 6.41%.
By the numbers — 2006: new-home sales 1,051K, existing-home sales 6.48M, median existing price $221,900, 30-year mortgage rate 6.41%.
Macroeconomic Context
The Federal Reserve completed its tightening cycle in June 2006, raising the federal funds rate to 5.25 percent — the highest level since January 2001. The central bank then held at that level as policymakers assessed the lagged effects of 17 consecutive rate hikes. GDP growth moderated to approximately 2.8 percent as housing construction contracted sharply, subtracting from economic output for the first time in a decade. Consumer price inflation peaked at 4.0 percent early in the year, driven by energy, then fell back to about 3.2 percent as oil prices receded from summer highs.
The housing market peaked in the first half of 2006 on most measures. The S&P/Case-Shiller National Home Price Index reached its all-time high in the second quarter, and new-home starts began falling sharply as builders recognized the inventory overhang building in formerly hot markets like Phoenix, Las Vegas, Miami, and the Inland Empire of California. Speculative investors who had purchased condos pre-construction began to walk away from deposits rather than close.
Subprime mortgage delinquencies began rising in the second half of 2006, though the problems were initially dismissed as isolated to a few lenders with particularly poor underwriting. New Century Financial, Ownit Mortgage, and other non-bank subprime originators began posting elevated loss rates. Rating agency analysts noted the deterioration but continued to assign high ratings to senior tranches of subprime MBS, relying on historical default models that had never experienced a nationwide housing price decline.
The mid-term elections returned Democratic majorities to both chambers of Congress in November, reflecting voter frustration with the Iraq War and the early signs of economic stress in exurban communities that had expanded most aggressively during the boom.