New-Home Sales Fell 11.3% in November

By Kirstin Downey
Washington Post Staff Writer
Saturday, December 24, 2005

Sales of new homes dropped 11.3 percent in November, and the median sales price -- the point at which half the homes sold for more and half for less -- fell 4 percent, to $225,200, the lowest it has been in 10 months, the Commerce Department reported yesterday.

The decline reflects the market slowdown that many builders have been reporting. In early November, for example, Pennsylvania-based Toll Brothers Inc., which builds luxury homes and is a major player in the housing market in the Washington area, announced that it had lowered its forecast for the number of homes it expected to build in 2006, citing a slight softening in demand. Two weeks ago, the company said it projected slower growth in profit because sales had slowed.

In interviews earlier this week, housing economists said that builders have been reporting a drop in purchases but noted that the declines came after record sales and construction activity. They noted that many firms are giving incentives, such as free amenities and assistance with closing costs, to propel sales.

Even with the dip in November compared with October, however, total new-home sales were still 6 percent above November 2004, according to the government figures. At this rate, about 1.25 million new single-family homes will be sold in 2005, up from the record-breaking 1.2 million sold in 2004.

"It looks like we are going to break the record this year because with 11 months of data we have 1.2 million already, and we still have another month outstanding," said Steven Berman, a survey statistician at the Census Bureau in the Department of Commerce, which compiles and interprets the data each month.

In the South, which includes the Washington area, new-home sales fell 5.5 percent in November but were still 10.1 percent above November 2004.

In recent months, many economists have been surprised by the higher-than-expected monthly new-home-sales and permit numbers reported by the government agency. Berman, who has been working on home building and sales statistics collection for 28 years, said the numbers fluctuate because of the volatility that comes from the statistical sampling the agency uses and because of the inevitable delays that occur between when a permit is pulled, when construction begins, when the property goes under contract and when the buyer takes possession.

About 20,000 communities in the United States require builders to obtain permits to construct houses. The federal agency contacts about 9,000 of them each month, gathering information about homes being planned and under construction, and the kinds of homes being built. It contacts all 20,000 once a year, which allows it to capture those not included in the smaller monthly sample. The agency also fields 250 inspectors who travel the country, double-checking and gathering additional data from construction sites and the regional offices of home-building firms. They also seek to ferret out what information they can glean on the ground in the 1 percent to 2 percent of jurisdictions in the United States that do not require building permits.

Those data are the basis of the monthly building permit report, which is released a few days earlier than the home sales report each month. Earlier this week, that report showed a jump in construction starts in November. The information is also used as the basis of the home price report, the information that was released yesterday. The statistical sample for home prices includes only about 2 percent of all properties sold. Gathering a larger sample would be financially impractical, Berman said, and so the agency relies on its annual recalibration of figures in which all 20,000 communities are surveyed. That typically occurs in May.

Berman said that monthly figures are not a terribly useful indicator because they can fluctuate if just one area of the country that happened to be included in the sample had particularly strong or weak sales. In October, for example, the Commerce Department reported that new-home sales jumped 13 percent, much of it because of a 47 percent rise in sales in the West. In November, however, home sales activity in the West reverted to normal, which partially accounts for the November decrease.

Berman said many observers tend to overstate the importance of any month's statistics, when a three-month rolling average would be more informative. He said that one-month jumps or falls are often not representative of larger trends.

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