February 28, 2006|By VIKAS BAJAJ | VIKAS BAJAJ,NEW YORK TIMES NEWS SERVICE
Sales of new homes fall 5% while prices rise Sales of new homes fell sharply last month, but prices increased, a sign that homebuilders are luring buyers with incentives rather than lower prices and that demand, while weakening, remains healthy.
The Commerce Department reported yesterday that January sales of new homes fell 5 percent, to an annual pace of 1.23 million, its lowest level in a year. The inventory of unsold new homes rose to a record 528,000 in January, up 1.2 percent from December and more than 20 percent from a year ago.
The drop in sales has not significantly depressed home prices. In January, the median price of a new home (meaning half sold for more and half sold for less) increased 6.7 percent from a year ago, to $238,100. Housing experts say that reflects the efforts by homebuilders to lure buyers by offering to pay closing costs and to upgrade appliances and other fixtures.
Such incentives might increase builders' costs but do not show up as a drop in the price paid by the buyer.
"We are switching from a red-hot seller's market to a market that is better balanced between buyers and sellers," said David Seiders, chief economist of the National Association of Home Builders.
Data on new-home sales, which make up 15 percent of transactions, are considered a leading but volatile indicator of the housing market because it uses a small data sample to estimate the number of purchase contracts signed.
Sales rose 3.8 percent in December and fell 7 percent in November, according to the data.
By comparison, sales of previously owned homes, which make up 85 percent of transactions, measure contract closings from a much larger sample. They have shown a more consistent pattern of slowing, falling 5.7 percent in December, 1.3 percent in November and 2.7 percent in October. The National Association of Realtors is expected to release January sales data today, and economists expect sales to be flat for the month.
Homebuilders say they are having to work a bit harder to sell properties, but buyers in many parts of the country remain interested, especially when the deal is sweetened with granite counter- tops and top-of-the-line kitchen appliances.
Toll Brothers Inc., the nation's biggest builder of luxury homes, is using such incentives in some markets on the coasts, along with loans that can reduce the introductory rate on an adjustable mortgage by 1 percentage point or more. But the company has not cut its list prices.
"It's being portrayed almost as a collapsing market, and it's not that way at all," said Robert I. Toll, chairman and chief executive. "But there's no doubt it's softer. If this is a collapsing market, I'll make a deal with the devil. I'll take it forever. This is not a bad market."
Analysts say the big test for the housing market will come in the spring and summer, when home sales are typically highest. A significant slowdown then would hurt not only homebuilders, but also the economy as a whole, because it would reduce consumer spending on furniture and other household goods.
"What we have seen so far is a slowdown in transactions, rather than price levels," said Jeffrey L. Knight, chief investment officer at Putnam Investments, "and that may well be the extent of what we see: a slowdown from a frenzied pace."
David Leonhardt of the New York Times News Service contributed to this article.
