Thursday, December 23, 2004

US new home sales take steepest plunge in nearly 11 years

WASHINGTON (AFP) - New US home sales took the steepest plunge in nearly 11 years in November, the government said, stirring expectations the searing sector will cool in 2005.

Photo
AFP/File Photo

Sales plummeted 12.0 percent, the sharpest decline since January 1994, to a seasonally adjusted annual rate of 1.125 million homes, the Commerce Department (news - web sites) said.

The drop disappointed Wall Street analysts who had widely predicted a reading of about 1.2 million after an upwardly revised record-setting 1.278 million home sales in October.

The stock of unsold homes grew.

The number of new homes for sale at the end of November rose 8,000 to 418,000 -- the biggest number since August 1979 and enough to last 4.5 months at the current sales pace, up from 3.9 months in October.

Bad weather may have caused some of the slowdown, said a report by Merrill Lynch senior economist Kathleen Bostjancic and chief North American economist David Rosenberg.

"But in general we see a pattern whereby both home sales and housing starts are leveling off and we believe the theme for next year could shift from high growth in residential activity to just a high level," they said.

Compared to a year earlier, new home sales in November were still up 3.6 percent.

The median, or middle-of-the-range, sales price was 206,300 dollars, down from 207,100 a year earlier.

The November slump appeared to fit with latest economic figures showing growth in residential investment slowed to 1.6 percent in the third quarter from 16.5 percent the previous three months.

Mortgage interest rates edged up only slightly in November.

The average 30-year fixed mortgage rate rose to 5.72 percent on November 24 from 5.64 percent on October 28, according to US mortgage wholesaler Freddie Mac.

Sliding mortgage rates last year unleashed a rush to re-finance mortgages, putting billions of dollars into home owners' pockets and helping to stimulate a consumer-led economic expansion.

Joel Naroff, president of Naroff Economic Advisors, said a regional breakdown showed a surprise 39.4-percent plunge in sales in the Midwest, an anomaly he expected to be corrected in later government data.

"The level of home sales, both new and existing (homes), have been so high. While most of us have been saying this for a while, I think we genuinely believe that it is simply unsustainable," Naroff said.

"When the slowdown occurs, it may be sharp. Is this the beginnings of it? Probably not because I just don't trust that Midwest number. But should we expect to find home sales slowing? My answer is yes, I have no doubt that will be the case."

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