New-home sales fall 11.3%, biggest drop in nearly 12 years

December 24, 2005|By BLOOMBERG NEWS

WASHINGTON -- U.S. new-home sales fell the most in almost 12 years in November and businesses trimmed orders for most types of equipment, suggesting that two areas of strength in the U.S. economy are wavering.

Purchases of new homes fell 11.3 percent to an annual rate of 1.245 million units after a record October, the Commerce Department said yesterday.

Orders for durable goods excluding commercial aircraft fell 0.6 percent, a third straight drop.

Companies are moving slowly to replace depleted inventories, worried that still-high energy prices may cut consumer purchases in coming months.

A pickup in investment is necessary to help overcome a likely slowdown in housing, economists said. For now, a University of Michigan survey yesterday showed that consumers are gaining confidence as fuel prices drop.

"If housing slows, manufacturing will slow as well," said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn. The economy next year "will be a bit weaker than it is now, but still OK."

Total orders for durable goods, which are expensive items designed to last at least three years, rose 4.4 percent in November. The increase was the most in six months as demand for commercial aircraft more than doubled.

But economists are focused on the less volatile figure that excludes transportation equipment because it may be a better barometer of manufacturing.

Machinery orders decreased 1.6 percent last month after rising 2.2 percent in October. Orders for computers and electronic products rose 0.7 percent after decreasing 3 percent.

Communications equipment orders fell 4.4 percent after rising 3.8 percent in October.

Orders for transportation equipment surged 15.6 percent after rising 11.2 percent in October. The increase was led by a 134 percent increase in aircraft orders, which rose 52 percent in October. Bookings for motor vehicles dropped 5.7 percent, the most since July 2004.

Total durable goods orders exceeded the median forecast for a 1.2 percent increase, while the figure excluding transportation equipment fell 0.6 percent instead of rising 1 percent as economists expected.

The University of Michigan's final index of consumer sentiment rose to 91.5 this month from November's 81.6 and compares with a preliminary December reading of 88.7 two weeks ago.

The increase from November was the biggest since January 2004.

"Consumer confidence is closing out the year on a high note," said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York.

New-home sales fell from a record 1.404 million annual rate in October, and the decline was the biggest since January 1994.

The median new-home price fell for a third straight month, to $225,200. The price is up from $224,500 a year earlier.

New-home sales in the first 11 months almost set a fifth-straight annual record, an achievement that won't be repeated in 2006 as rising borrowing costs make houses less affordable, economists said.

The home-sales decline will slow the economy and make business more difficult for homebuilders such as Toll Brothers Inc., whose stock price is down 29 percent in the past six months.

"Housing has peaked and we're expecting some moderate weakening in 2006," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

The drop in sales caused the number of unsold homes to rise to a record 503,000 in November from 487,000 a month earlier.

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