- The Washington Times - Thursday, March 23, 2006


Sales of existing homes had fallen for five straight months before an unexpected increase in February, helped by unusually warm weather. But slack demand in some formally red-hot housing markets produced what one analyst called a “tale of two cities.”

The National Association of Realtors (NAR) reported yesterday that sales of existing single-family homes rose by 5.2 percent last month to a seasonally adjusted annual rate of 6.91 million units.

The biggest increase in two years took economists by surprise. They had expected a drop of about 1 percent after five months of declines.

One of the economy’s standout performers over the past five years, housing has been slowing in recent months.

Analysts cautioned against reading too much into the February increase, saying it primarily reflected an unusually mild winter, which boosted buyer traffic.

David Lereah, the NAR’s chief economist, said there has been a real split in performance in recent months, with many previously hot markets suffering declines as rising mortgage rates make higher-priced homes less affordable.

He said sales were down by double digits in such previously sizzling sales markets as Phoenix, San Diego and Fort Lauderdale, Fla.

By contrast, he said some medium-priced markets were posting strong sales gains, citing Indianapolis, Houston and Albuquerque, N.M., as examples of double-digit gains.

“This is a report of a tale of two cities,” he said. Mr. Lereah said higher interest rates were “tapping the brakes, notably in higher-cost housing markets.”

Nationwide, the median sales price for an existing home — the point at which half the homes sold for more and half for less — rose to $209,000 in February, an increase of 10.6 percent from February 2005.

That sales price was 5 percent less than the all-time high of $220,000 set in August. The median in January was $210,000.

Many economists think that price appreciation will slow from double-digit increases to gains of about 5 percent this year with sales declining by about 5 percent after five record years in a row.

If that forecast comes true, then the housing boom of recent years will slow to a more sustainable pace.

Some analysts worry that the slowdown could be more severe, repeating the boom-bust cycle that occurred in the stock market at the beginning of the decade. In that instance, the speculative fever that had driven stock prices to record highs suddenly burst, with severe consequences for the overall economy.

Patrick Newport, U.S. economist for Global Insight, a private forecasting firm, said all signs point to further declines in housing sales this year. He predicted that the declines would be moderate.

“The housing slowdown will be gradual and take place over the next three to four years,” he said.

He predicted that the housing slowdown would reduce overall economic growth by two-tenths of a percentage point this year and by one-half of a percentage point in 2007.

Sales rose 19.2 percent in the Northeast region of the U.S. in February, 11.1 percent in the Midwest and 5.1 percent in the West.

Only the South showed weakness last month, with sales there dropping by 2.5 percent from January.

There were 3.03 million unsold homes on the market at the end of February, representing a 5.3-month supply at the current sales pace, the same as in January. That was up from a four-month supply of homes for sale a year ago. Analysts said the rising number of unsold homes would act to slow price increases.

Sales of single-family homes were up 4.7 percent in February to a seasonally adjusted annual rate of 6.06 million units; sales of condominiums rose 8.8 percent to a seasonally adjusted annual rate of 850,000 units.

The median price of a single-family home was up 11.6 percent from a year ago. The median price for a condominium had a much smaller price gain of 3.5 percent from a year ago.

In other economic news, the Labor Department reported that the number of newly laid-off people filing claims for unemployment benefits declined to 302,000 last week, a larger-than-expected improvement of 11,000 from the previous week.

It was the first drop in jobless claims in four weeks and provided further evidence that the labor market is recovering after a wave of layoffs in the fall after the Gulf Coast hurricanes.

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