Sales of new homes up 3.4%

Weakness persists despite Nov. gain

December 28, 2006|By New York Times News Service

Builders sold new homes at a faster rate last month than they did in October, shrinking the backlog of unsold homes on the market, the Commerce Department reported yesterday.

But many economists said the report, rather than foreshadowing a quick rebound, highlighted how fragile residential construction remained and suggested that the downturn now rattling the housing market had not yet run its course.

The report showed that sales of new single-family homes rose 3.4 percent in November, seasonally adjusted, to an annual rate of 1.05 million. That followed a 3.8 percent decline in October.

The news helped propel stocks on Wall Street to another record high - its 22nd this year - with the Dow Jones industrial average rising more than 100 points to finish the day above 12,500 for the first time.

It was a session typical of the often-buoyant final trading days of the year in which stocks gain on light volume as investors seek to polish their portfolios.

Shares of homebuilders like Pulte Homes, Toll Brothers and Lennar all gained more than 1.5 percent as investors read the home sales numbers as a sign that the housing market may have bottomed out.

Economists typically do not use November figures to make generalizations about trends in the housing market because the month is shortened by the Thanksgiving holiday. In fact, when the numbers are not seasonally adjusted, the number of new homes sold in November - 72,000 - was the lowest in almost four years. Inventories, a 7.7-month supply unadjusted, were the highest since December 1995.

"There's a relatively large adjustment factor here," said Michael Carliner, an economist with the National Association of Home Builders. "I wouldn't read too much into those numbers."

At first glance, many numbers in the report seemed to hint at a recovery in new-home sales.

The median price of a new home in November rose, for example, and sales in the Northeast, Midwest and West all grew by double digits for the month. Beyond the numbers for November, however, few signs in the report pointed toward a reversal of the overall downward trajectory in residential housing.

Despite the November advance, sales of new homes are off 15.3 percent compared to a year earlier.

"Although the rebound in sales is consistent with the housing slowdown bottoming out, it seems too early to rejoice," said Dimitry Fleming, an economist with ING Financial Markets. "Supply is still high."

Many economists do not expect the market to stabilize until mid-2007.

When the statistics are adjusted for seasonal variations, the backlog of unsold new homes on the market declined to a 6.3-month supply in November, down from a 6.7-month supply in October. But that is still far higher than November 2005, when there was a 4.9-month supply.

The median price of a home rose 5.8 percent from November 2005, to $251,700. But economists said the increase was most likely the result of a rise in sales for the month in the Northeast and the West, where homes are more expensive.

In November, sales in the Northeast climbed 22.5 percent compared with October, while the West saw a 19 percent jump.

The sales data from the past year, however, is more sobering. The Northeast was hit particularly hard; sales fell 42.4 percent from a year ago. Sales in the South declined 19.2 percent, and they fell 9 percent in the West. In the Midwest, however, sales rose 1.2 percent.

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