- The Washington Times - Wednesday, December 27, 2006


Sales of new homes bounced back in November and have posted increases in three of the past four months, a hopeful sign that this year’s severe drop in housing may be coming to an end.

The Commerce Department reported yesterday that sales of new single-family homes rose 3.4 percent last month to a seasonally adjusted annual rate of 1.047 million units.

That was better than the 1.1 percent gain economists had been expecting. The government also revised the previous three months to show stronger activity.

“It looks like sales activity has truly bottomed out,” said David Seiders, chief economist for the National Association of Home Builders.

Housing, which had been one of the economy’s standout performers, has been battered this year as interest rates rose in the spring and potential buyers began to balk at paying prices that had surged to record levels, reflecting five boom years for sales.

The median price of a new home sold last month rose to $251,700, up 3.2 percent from the October level and 5.8 percent higher than a year ago.

However, analysts said the price increase was primarily because of sales increases in high-priced regions of the country such as the Northeast and West while falling in the South, where home prices are generally lower.

They predicted further price declines in the months ahead because the inventory of unsold homes, despite recent declines, remains at elevated levels. The median price, the midpoint for homes sold in a given month, peaked at a record of $257,000 in April.

The housing slowdown has had a major effect on the overall economy, shaving 1.2 percentage points from growth in the July-to-September period and probably an equal amount from growth in the current quarter.

The overall economy expanded at an anemic annual rate of 2 percent in the third quarter with growth in the final three months of the year expected to come in only slightly better than that.

There had been fears that the bursting of the real estate bubble might have a similar effect as the bursting of the stock market bubble did in 2001, restraining consumer spending so much that it could push the country into a full-blown recession.

Analysts now expect the economy to avoid an outright downturn, although they said the weakness from housing probably would depress overall growth through the first half of next year.

“The U.S. economy is still far from breaking free of the shackles of the housing recession despite this bit of holiday cheer,” said Michael Gregory, senior economist at BMO Capital Markets.

Mr. Seiders said he expected new home sales, which had set records for five years, to fall by 18 percent this year to about 1.05 million units from last year’s record high of 1.28 million units.

He said he looked for sales to stabilize at that level next year as builders continue to work down a huge backlog of unsold homes by offering a range of incentives from kitchen upgrades to free landscaping.

The number of unsold homes fell by 1.4 percent in November to 545,000. It was the fourth straight decline in inventories after they had hit a record high of 573,000 units in July.

It would take 6.3 months to exhaust the current supply of homes at the November sales pace, down from 6.7 months in October and 7.2 months in July.

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