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U.S. Economy:
Sales of New Homes Decline, Inventory a Record
Feb. 27
(Bloomberg) -- New-home sales in the U.S. fell to the lowest level
in a year in January and the number of properties on the market was
the most ever, more signs housing is losing its luster after five
record years.
Sales declined a
greater-than-expected 5 percent to an annual rate of 1.233 million
from a revised 1.298 million in December, the Commerce Department
said today in Washington. The number of homes for sale rose to an
all-time high of 528,000 in January from December's 515,000.
Higher mortgage
rates and home prices will push down sales and may contribute to a
slowing of the economy in the second half, economists said. Home
construction may not add to economic growth this year for the first
time in more than a decade, leaving homebuilders less optimistic.
``The combination
of slower demand and looser supply is likely to put downward
pressure on housing-price growth,'' said Jonathan Basile, an
economist at Credit Suisse in New York. ``Housing won't be the
driver for growth as it has been.''
Economists
expected sales to fall to an annual rate of 1.265 million, the
median of 56 forecasts in a Bloomberg News survey, from December's
originally reported 1.269 million. Estimates ranged from 1.19
million to 1.35 million.
The median
selling price of a new home last month was $238,100, up 6.7 percent
from a year earlier.
At the current
sales pace, there were enough new homes on the market to satisfy
demand for the next 5.2 months, the most since November 1996.
Builder Shares
Builders
including Toll Brothers Inc., the largest U.S. provider of luxury
homes, say orders are declining and may offer homes with fewer
extras to keep prices down and trim inventories. A larger supply of
available homes and less demand may help hold down prices this year.
A Standard &
Poor's index of 16 homebuilders, including D.R. Horton Inc. and
Centex Corp. fell 12.5 points, or 1.4 percent, today as of 10:51
a.m. in New York.
``You're seeing
inventories creeping up and affordability pinching more and more,
and you're seeing long-term rates creeping up,'' said Anthony Chan,
chief economist at JPMorgan Chase & Co.'s private client services
group in Columbus, Ohio. ``All that suggests a trimming of housing
activity.''
Prices for new
homes will rise 5.7 percent this year after climbing 7.4 percent in
2005, the National Association of Realtors forecast on Feb. 7.
Existing home prices will increase 5 percent after jumping 12.7
percent last year, the most since 1979. The Realtors probably will
report tomorrow that existing home sales last month held at the
lowest level since March 2004.
Economic Growth
Resales make up
85 percent of the housing market and are counted when the sale is
closed, while new homes account for the rest and are recorded when a
contract is signed. Sales of new and existing homes will fall to a
combined 7.91 million this year, the third highest on record,
according to the Realtors.
The slowdown in
the housing market may weigh on economic growth in the second half
of the year, Federal Reserve policy makers said in the minutes of
their Jan. 31 meeting, released earlier this month. The central bank
increased its main interest rate for the 14th time at that meeting,
to 4.5 percent, and said more increases ``may be needed'' to keep
inflation under control.
The economy
probably will grow at a 4 percent annual rate this quarter, slowing
to 3 percent by the last three months of the year, according to a
Bloomberg survey from Jan. 31 to Feb. 8. An improving outlook for
jobs and incomes may keep home sales from falling too far.
Economists, including those at Lehman Brothers Inc., have raised
their first-quarter forecasts since the poll was taken as record
warm weather increased housing starts and retail sales.
Home sales fell
in three of four regions. They dropped 15 percent in the Northeast,
11 percent in the Midwest and 10 percent in the South. Sales rose 11
percent in the West.
Affordability
Housing
affordability fell to the lowest level in more than 14 years last
quarter and may decline further in 2006 as mortgage rates and prices
continue to rise, according to the Realtors.
The average rate
on a 30-year fixed mortgage rose to 6.15 percent in January from
5.71 percent a year earlier, according to Freddie Mac, the
second-largest mortgage buyer. Rates continued rising in February
and reached 6.26 percent last week.
Toll Brothers
said this month first-quarter orders plunged 29 percent from a year
earlier and sales for the year would rise as little as 4.9 percent.
``Speculative
demand has ceased and speculators are now putting their homes back
on the market,'' Robert Toll, the company's chairman and chief
executive officer, said in a statement. ``The result has been more
supply than demand in some regions'' including metropolitan
Washington.
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