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The Honolulu Advertiser
Posted on: Thursday, December 28, 2006

Home sales rebound in November

By Martin Crutsinger
Associated Press

Sales of existing homes posted a tiny increase in October, the first gain in eight months. But the best news for the battered housing industry came in sales of new homes: In November, new single-family home sales rose 3.4 percent, marking the third increase in the past four months.

AP library photo

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WASHINGTON - Sales of new homes bounced back in November and have now posted increases in three of the past four months, a hopeful sign that this year's severe drop in housing may finally be coming to an end.

The Commerce Department reported yesterday that sales of new single-family homes rose 3.4 percent last month to a seasonally adjusted annual rate of 1.047 million units.

That was better than the 1.1 percent gain economists had been expecting and the government also revised the previous three months to show stronger activity.

"It looks like sales activity has truly bottomed out," said David Seiders, chief economist for the National Association of Home Builders.

Housing, which had been one of the economy's standout performers, has been battered this year as interest rates were rising in the spring and potential buyers began to balk at paying prices that had surged to record levels, reflecting five boom years for sales.

The median price of a new home sold last month rose to $251,700, up 3.2 percent from the October level and 5.8 percent higher than a year ago.

However, analysts said the price increase was due primarily to the fact that sales increased in high-priced regions of the country such as the Northeast and West while falling in the South, where home prices are generally lower.

They predicted further price declines in the months ahead because the inventory of unsold homes, despite recent declines, remains at elevated levels. The median price, the midpoint for homes sold in a given month, peaked at a record $257,000 in April.

The housing slowdown has had a major impact on the overall economy, shaving 1.2 percentage points from growth in the July-September period and probably an equal amount from growth in the current quarter.

The overall economy expanded at an anemic annual rate of just 2 percent in the third quarter with growth in the final three months of the year expected to come in only slightly better than that.

There had been fears that the bursting of the real estate bubble might have a similar effect as the bursting of the stock market bubble in 2001, restraining consumer spending so much that it could push the country into a full-blown recession.

However, analysts now expect the economy will avoid an outright downturn although they said the weakness from housing was likely to depress overall growth probably through the first half of next year.

"The U.S. economy is still far from breaking free of the shackles of the housing recession despite this bit of holiday cheer," said Michael Gregory, senior economist at BMO Capital Markets.

Seiders said he expected new home sales, which had set records for five years, to fall by 18 percent this year to around 1.05 million units from last year's all-time high of 1.28 million.

He said he looked for sales to stabilize at that level in 2007 as builders work down a huge backlog of unsold homes by offering incentives ranging from kitchen upgrades to free landscaping.

"We are also seeing a lot of builders paying part of the closing costs," Seiders said.