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Sales of New Homes Up 13 Percent in Oct.
Tuesday November 29, 4:24 pm ET
By Martin Crutsinger, AP Economics Writer


Sales of New Homes Climb 13 Percent in October in What May Be Final Spurt From Housing Market

WASHINGTON (AP) -- Sales of new homes jumped to an all-time high in October in what could be a final spurt from a housing market that is expected to slow after five record-breaking years.

The Commerce Department report released Tuesday showed sales of new single-family homes climbed to a record annual rate of 1.42 million units last month. The 13 percent increase from September was the largest percentage gain in more than 12 years.

Analysts said the unexpected surge was probably influenced by fence-sitters rushing to buy homes before mortgage rates climb higher.

"The housing market is peaking despite what today's data suggest," said Mark Zandi, chief economist at Moody's Economy.com.

He said part of the rise in October could have occurred because worried builders have started cutting prices and offering other incentives to move unsold homes.

While the median, or midpoint, price of a new home rose to $231,300, that was up just 0.9 percent from the median price in October 2004 and far below the double-digit annual price gains that sellers had been enjoying.

Analysts said this price deceleration fits with other evidence that the housing sector is beginning to slow.

On Monday, the National Association of Realtors reported that sales of previously owned homes fell by a bigger-than-expected 2.7 percent in October. That decline followed a report that construction of new homes and apartments was down 5.6 percent in October as builders reduced building plans in the face of slowing demand.

Earlier this month, luxury home builder Toll Brothers cut its sales forecast for the coming year, citing delayed openings for new developments and weakened demand in several of its markets.

The report on existing homes said the inventory of unsold homes rose to a 19-year high in October, while Tuesday's report on new home sales said the inventory of unsold new homes hit a record in October. This inventory overhang is expected to depress price gains in coming months.

Analysts said part of the reason for the discrepancy between the decline in existing home sales and the rise in new home sales last month could be explained by the fact that new home sales are measured when the initial contract is signed, while existing home sales are not counted until the deal is closed.

If the sustained rise in mortgage rates, which began in September, has triggered a last-minute rush of home buying, it would have been captured more quickly by the new home sales report.

Economists believe the momentum so far this year will result in a fifth year of record sales for both new and existing homes in 2005, but they forecast sales declines in 2006 as potential buyers react to sustained increases in mortgage rates.

Rates for 30-year mortgages have been above 6 percent for seven consecutive weeks and economists are predicting they will rise even higher in coming months as the Federal Reserve keeps raising rates to combat inflation pressures.

Patrick Newport, an economist at Global Insight, a private research firm, predicted that sales of both new and existing homes would drop by around 10 percent next year.

"We are not expecting a crash or anything dramatic but a slowdown from the sizzling numbers that we have been seeing," he said.

David Wyss, chief economist at Standard & Poor's in New York, said next year's expected decline will be cushioned somewhat by an expected 100,000 to 150,000 new homes built to replace houses destroyed by this year's hurricanes.

The concern of some economists is that the booming housing market could have a bigger downturn similar to the bursting of the stock market bubble in early 2000.

The worry is that activity in recent years has been pumped up by investors buying homes and condominiums in hopes of quick gains. If they suddenly decide to dump those properties, it could cause a glut on the market that would further depress prices.

The gain in October new home sales was led by a 46.9 percent surge in the West and a 43.3 percent jump in the Northeast, two huge increases which economists said could be revised lower in coming months.

Sales were up a more modest 1.9 percent in the South but were down 9.5 percent in the Midwest.

New home sales: http://www.census.gov/newhomesales


Copyright © 2005 The Associated Press