Drop in Jan. new home sales biggest in 9 years
Bloomberg News Service
WASHINGTON — U.S. new home sales fell in January by the most in nine years, reflecting a record decrease in the Midwest and declines in the West and South.
Single-family homes sales dropped to a 914,000-unit annual rate, the slowest in a year and down 15.1 percent from December's record 1.077 million-unit pace, the Commerce Department said. Economists had expected sales to drop to a 1.05 million rate according to the median of 55 forecasts in a Bloomberg survey.
The biggest decline in home sales since January 1994 and consumer confidence at a nine-year low suggests housing won't add as much to economic growth this year as last, economists said.
"There's a chance that this rapidly deteriorating consumer confidence is causing some kind of pause," said David Seiders, an economist at the National Association of Home Builders. "It may be a bit of a weather story. It's hard to know how much. It's certainly a cautionary signal."
Other economists aren't convinced housing is weakening. On Tuesday, the National Association of Realtors reported that sales of previously owned homes rose to a record annual pace of 6.09 million. That was up 3 percent from December's 5.91 million rate. Previously owned home sales are 85 percent of the market.
"We are skeptical of the drop" in new home sales, said Christopher Low, chief economist at FTN Financial in New York. "Given the huge rise in existing home sales and the problematic history with new home sales data in January, there's no way to judge the meaning of today's decline."
In January last year, home sales fell 11.1 percent and then rebounded 7.7 percent in February and finished the year at a record. Sales have fallen in four of the last five Januarys.
By region, sales fell 42.2 percent in the Midwest to 163,000 units at an annual pace, the slowest since June. They declined 12.9 percent in the South to a 406,000-unit rate, the weakest since January 2002, and 1.4 percent in the West to an annual pace of 279,000 units. They rose 43.5 percent in the Northeast to 66,000 units at an annual rate.
"... There's got to be some anomaly going on," said Joel Rassman, chief financial officer at Toll Brothers Inc., the largest U.S. builder of luxury homes. "In Michigan, which is our biggest Midwest region, we are over 50 percent higher than we were (a year earlier). We don't see the slowdown in orders that were indicated in the Midwest data."
New homes account for 15 percent of all houses on the market and are among the most current indicators of demand because sales are based on contracts, when buying decisions are made.
In another sign home construction may slow, the inventory of homes available for sale rose to 4.5 months' worth in January, the most since June 2000, from 3.8 months in December. The National Association of Home Builders, which represents builders, home remodeling companies and other groups, is projecting sales of about 960,000 in 2003. That would still be the second-best year ever after last year's record of 976,000. The median price of a new home fell 5.2 percent in January to $182,300 from $192,300 the previous month.
"I'm not going to say there's no possibility of house prices declining — there is," Federal Reserve Chairman Alan Greenspan said in Senate testimony yesterday. "They declined 20 to 25 years ago for quite a while. But the notion of a bubble bursting and a whole price level coming down seems to me, as far as a nationwide phenomenon, really quite unlikely."
Sales of new and existing homes have been fueled by low borrowing costs. The average rate on a 30-year mortgage last week was 5.84 percent, which Freddie Mac, the No. 2 buyer of U.S. mortgages, said was the lowest in four decades. The rate averaged 5.92 percent in January, down from 6.05 percent in December.
