Investment propertyYear-End Slowdown In Housing Market
Inflation is in check as the economy grows and consumers work and spend more, but the housing market is becoming less and less of a factor as it begins to slip from its post as a leading economic sector.
New home sales plunged in November by 11.3 percent, the largest fall in nearly 12 years, according to the Commerce Department.
The new home median price dropped, too, by 4.1 percent to $225,200. That was up only 0.3 percent from November 2004, revealing a significant slow down from double-digit price increases.
November new home sales slipped everywhere except in the Northeast, where they enjoyed a 13.4 percent surge, the biggest gain since January 1994. Sales were down 22.1 percent in the West, the largest decline since February 1994, while sales fell 18.3 percent in the Midwest and 5.5 percent in the South.
The stockpile of unsold homes rose to a record of 503,000 homes in November, the Commerce Department said.
Analysts still expect sales of both new and existing homes to set records for a fifth consecutive year in 2005, but that will just about do it for record setting this cycle. Analysts are also forecasting sales declines of around 6 percent in 2006 as demand succumbs to the pressure of rising mortgage rates.
"The slowdown amounts to a tapping of the brakes on a hot market," said David Lereah, National Association of Realtor"s chief economist
"Home sales are coming down from the mountain peak, but they will level-out at a high plateau - a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing," he added.
NAR"s last Pending Home Sales Index released in early December, based on contracts signed in October, dropped 3.2 percent to a level of 123.8 from a reading of 127.9 in September, and is 3.3 percent below October 2004. The reading is the lowest since March of this year.
"The drop in pending home sales is an affirmation that we are experiencing a modest slowing in the housing sector," said Lereah.
Seasonal factors certainly are contributing to slower sales, but some of the slowdown is due to prices moving beyond the reach of buyers. The Office of Federal Housing Enterprise Oversight reported that by the third quarter home prices nationwide had jumped 12 percent this year. NAR says its affordability index is at its lowest level in 14 years.
Interest rates are making homes even more expensive. Just as low mortgage rates buoyed the housing market for years, higher rates are now sinking sales.
Freddie Mac reported recently that fixed interest rates on 30-year mortgages dipped for two weeks down to 6.26 percent, but they are more than a full percentage point above the four-decade low of 5.21 percent set in mid-2003.
The Federal Reserve pushed benchmark interest rates up for a 13th time in December with two more rate hikes expected in January and March as the Fed tries to slow the economy to keep inflation in check.
Meanwhile, the economy is roaring ahead as the Commerce Department reported in late December that the third quarter gross domestic product (GDP), the nation"s total output of goods and services, rose at an annual rate of 4.1 percent in the July-September quarter -- the fastest pace of growth in 1.5 years.
Businesses added 215,000 workers to their payrolls in November, incomes rose by 0.3 percent and consumer spending rose by 0.3 percent. Early reports indicated online holiday sales -- 24 percent greater than last year"s holiday season -- would boost retail sales well into the black.
Consumers are also buying cars and investing in businesses, the Commerce Department reported.
Home sales, however, are not benefiting as they once were from the heavier consumer spending.