Sales of New Homes Down; Number of Unsold Homes Increasing

Sales of new homes fell 11 percent in November, after setting a record in October, and the number of houses for sale jumped 3 percent, the Commerce Department reported last week, according to the New York Times. Median prices for new homes -- $225,200 -- is nearly unchanged from last year at this time, the report said.

While new homes sales for the first eleven months of 2005 set a record for the fifth straight year, economists predict a leveling off in 2006, because rising interest rates will affect costs for home builders and mortgage rates for potential buyers. The total number of unsold homes rose to 2.87 million, the highest level in 19 years, MSNBC reports.

“This [report] is consistent with our view that the housing market is likely to continue to moderate in the coming months. But home sales are historically pretty strong,” said Patrick Fearon, senior economist at A.G. Edwards and Son in St. Louis, according to MSNBC.

Economists were cautious about drawing conclusions from the new homes sales data alone, Bloomberg.com says, because new home sales make up just 15 percent of all housing sales. In addition, the margin of error for the November figure is 8.9 percent, a significant number.

Mortgage rates increased from October to November. The average rate for a 30-year fixed mortgage rose to 6.33 percent in November, from 6.06 in October. The same rate was 5.85 percent a year ago, Bloomberg.com says, quoting a report from Freddie Mac, the No 2 U.S. mortgage buyer. The current (December) rate is averaging 6.29 percent.

The biggest drop in home sales was in the West, Bloomberg.com reports, a decline of 22.1 percent, to 342,000. Homes sales decreased 18.3 percent in the Midwest, to 156,000 and 5.5 percent in the South, to 654,000. Sales rose 13.4 percent in the Northeast, to 93,000.

David, Greenlaw, an economist at Morgan Stanley, noted that the current inventory of homes, which translates into a 4.9 month supply, is still much smaller than the 8.5 months of inventory typical of the early 1990’s, when real estate values declined in the aftermath of the savings and loan scandals. “You have a much, much different situation today,” he said, according to the Times report.

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