Housing market shows cracks

Sales of existing homes hit 8-month low, hinting at spending slowdown

December 30, 2005|By BLOOMBERG NEWS

WASHINGTON -- Sales of existing homes fell to an eight-month low in November, leaving the number of houses on the market at the highest since 1986 and suggesting one pillar of the U.S. economy will weaken next year.

Home sales dropped 1.7 percent to a 6.97 million annual rate, the National Association of Realtors said yesterday in Washington. Mortgage rates are higher than a year ago, and the report showed the median price rose 13.2 percent since November 2004 to $215,000, making homes less affordable.

The housing slowdown means the world's largest economy might have to depend more on businesses and less on consumer spending next year.

Companies are confident enough to keep hiring, the latest initial unemployment claims report suggested.

A weaker housing market "suggests that consumers won't feel as wealthy and may pull back the reins a bit on spending next year," said Gina Martin, an economist at Wachovia Corp. in Charlotte, N.C.

"Business spending will help make up for the moderation in consumer demand," she said.

The National Association of Purchasing Management-Chicago said its Business Barometer fell to 61.5 in November from 61.7, remaining above its average 60.7 for the year. A figure higher than 50 signals growth.

A gauge of prices paid by manufacturers fell from a 26-year high.

The number of Americans filing first-time claims for unemployment benefits rose 3,000 to 322,000 last week, staying below the year's average and suggesting the job market is still growing, yesterday's Labor Department report showed. The four-week moving average, a less volatile measure, rose by 250 to 325,000.

Existing-home purchases, which account for about 85 percent of the residential real estate market, slowed in all four regions and are down from a record 7.35 million pace in June.

New-home sales fell 11 percent in November, the most in 11 years, the Commerce Department said Dec. 23.

"Housing activity has peaked," said David Lereah, chief economist at the Realtors group, which predicts that sales of previously owned homes will fall to 6.84 million in 2006 from a projected record 7.1 million this year.

Economists expected November sales to fall to a 7 million annual rate from 7.09 million in October, based on the median forecast in a Bloomberg News survey.

November's reading was the lowest since 6.87 million in March.

The supply of existing homes for sale, another measure of housing demand, increased to 2.903 million in November, the highest since April 1986. That represented five months' worth of sales at the current pace, the highest since June 2003 and up from 4.9 months in October.

Today's supply remains more in balance than in April 1986, when the Realtors group said there was a 10.3-month inventory.

Home resales declined in all four regions during November, the report showed: 3.7 percent in the West to 1.85 million; 2.7 percent in the Northeast to 1.09 million; 1.3 percent in the Midwest to 1.56 million; and 0.7 percent in the South to 2.74 million.

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