Nation's new homes sales fall

By Sue Kirchhoff
USA Today

WASHINGTON — The frenzied housing market could be cooling.

The Commerce Department said yesterday that new home sales fell a sharper-than-expected 6.4 percent in July from June. That follows the National Association of Realtors' Tuesday report that existing home sales slid 2.9 percent in July.

"The house party is over," Wachovia economist Jason Schenker said in an advisory to clients, noting June and May figures were also revised lower. New home sales are off 11.6 percent from May — the worst performance in five years.

But some economists noted that the market has been volatile as the Federal Reserve has started to raise interest rates. Consumers may have jumped into the housing market this spring trying to beat anticipated higher mortgage rates, then backed out when the economy cooled and 30-year fixed rate mortgages fell back below 6 percent.

"We had a bunch of people fall off the fence earlier this year, and now people are lined up again on the fence," said Mark Dotzour, chief economist at the Real Estate Center, at Texas A&M University.

Still, economists expect a cooling in sales, though they expect 2004 will follow 2003 as a record year. They also expect moderation in prices, which have risen more than 20 percent a year in some areas, leading to fear of a housing price bubble. The Mortgage Bankers Association mortgage index fell 6 percent in the week ended Friday.

New home sales in July declined to about 1.134 million units at an annual pace. Monthly sales were off about 24 percent in the Northeast, 16 percent in the South and 2 percent in the West. Sales rose 22 percent in the Midwest. The median price dipped 1.4 percent in July.

Robert Toll, CEO of Toll Bros., a luxury home builder, said the drop in sales probably reflected the difficulty of acquiring land. "There is such a strong market in the Northeast, the only reason demand is down is that supply is down," he said. Yesterday, Toll reported third-quarter earnings up 56 percent.