Sales of New Homes Jump 13% in October

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By Sandra Fleishman
Washington Post Staff Writer
Wednesday, November 30, 2005

Sales of new homes unexpectedly catapulted 13 percent last month over September's rate, a monthly increase not seen in a dozen years, according to a government report released yesterday.

The rise in new-home sales, to a 1.42 million annual rate in October from 1.26 million in September, baffled some analysts. The confusion sprang partly from a report released Monday by the National Association of Realtors that said existing-home sales fell more than expected in October. The report said the available inventory rose to the highest level in almost 20 years, signaling that the housing boom has probably ended.

The unexpected burst of activity in sales of new homes, particularly a 47 percent rise in sales in the West, could be an error in reporting, some experts said, noting that monthly new-home statistics are volatile and often subject to revisions. Others speculated that it could reflect a "last hurrah" for the market.

"It's a much stronger number than we expected. We were expecting around 1.2 million homes. I'm still trying to figure it out myself," said Nick Buss, senior vice president for PNC Real Estate Finance. "You're probably seeing a little bit of it from the fence sitters jumping into the market, in anticipation that mortgage rates could go up. Or it could be that people are reacting to deals being offered; home builders last month put out a lot of incentives."

Mark Zandi, chief economist of Moody's, said a more telling indicator of the coming slowdown is "the rising record number of new homes for sale. He said, "Some of this is for homes that have yet to begin construction, but increasingly it's for homes that are under construction and are completed."

New-home sales rose 43 percent in the Northeast, according to government's report. The South, which includes the Washington area, reported an increase of 1.9 percent over September, while the Midwest reported a drop of 9.5 percent.

David Seiders, chief economist for the National Association of Home Builders, said his reaction was "surprise and a healthy degree of skepticism." He and others particularly questioned the gain in the West. "You could possibly argue that because the interest rates started to go up in September that you got an avalanche of these fence-sitters . . . into a buying mode," Seiders said. But, he said, "it's also likely that today's report overstates the true pace of home sales because of well-known statistical deficiencies."

David Lereah, chief economist for the National Association of Realtors, said: "I think it's mostly an error. The new-home sales report has got a reputation for always having big revisions. . . . Even if it's up only 3 percent instead of 13 [percent], I'm still a little confused how that could be."

© 2005 The Washington Post Company

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