- The Washington Times - Thursday, February 27, 2003

WASHINGTON, Feb. 27 (UPI) — The Commerce Department said Thursday new home sales in January posted their largest decline since January 1994, knocked down by a 42.2 percent decline in sales in the nation's Midwest region.

The government said new home sales fell to 15.1 percent in January to a seasonally adjusted annual rate of 914,000 units after jumping 3.5 percent in the final month of 2002.

Most economists on Wall Street had expected new home sales to decline 3 percent during the month.

The lowest mortgage rates since the 1960s had been fueling the buying of homes in recent months.

The average rate on the popular 30-year mortgage last week was 5.84 percent, which Freddie Mac, the buyer of mortgages, said was the lowest in four decades. The rate averaged 5.92 percent in January, down from 6.05 percent in December.

New home sales, which account for about 15 percent of all houses sold, are the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends.

Investors watch the report because it provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments.

By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic ripple effect can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

The latest report showed the inventory of homes available for sales rose to 4.5 months' supply in January from 3.8 months in December.

The Commerce Department said the median price of a new home fell 5.2 percent to $182,300 from $192,300 in December and $173,800 in November.

By region, sales plunged 42.2 percent in the Midwest to 163,000 units at an annual pace and dropped 12.9 percent in the South to a 406,000-unit rate.

Sales also fell 1.4 percent in the West to an annual pace of 279,000 units but rose 43.5 percent in the Northeast to 66,000 units.

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