New-Home Numbers Add to Housing Woes
Friday, August 25, 2006
New-home sales fell more steeply in July than economists forecast, and the number of unsold houses climbed to a record, deepening a slump in an industry that fueled economic growth for five years.
Purchases of new homes, which account for 15 percent of the market, dropped 4.3 percent to an annual pace of 1.072 million, the Commerce Department reported yesterday.
That followed a report the previous day showing that sales of previously owned dwellings had dropped to the lowest point in more than two years.
The real estate downturn may give Federal Reserve policymakers reason to keep interest rates steady in coming months in order to gauge whether other parts of the economy, such as company investment and manufacturing, can carry the expansion.
"Housing is coming off in a big way," said Martin Feldstein, a Harvard University economist and chief executive of the National Bureau of Economic Research. "That will be a drag on the economy."
The weakening market has left builders with record inventory and little choice but to reduce prices. Some Federal Reserve policymakers have said a slump in housing is one of their biggest concerns.
"The Fed was counting on a controlled decline in the housing market and has to be more concerned at this point," said Lindsey Piegza, a market analyst at FTN Financial in New York.
Sales of new homes are down 22 percent from the same time last year. The median price of $230,000 in July compares with $229,200 a year earlier. Price gains have slowed since a 14 percent increase in September 2005.
Some economists consider new-home sales a timelier indicator of the state of the market than sales of existing homes. New-home sales are recorded when a contract is signed, whereas purchases of existing homes are calculated when the sale is closed, usually a month or two later.
There were 568,000 new homes for sale at the end of the month, compared with 562,000 in June. The supply of unsold homes rose to 6.5 months' worth at the July sales pace, the highest since November 1995, from 6.2 months in June.
The number of homes completed and waiting to be sold rose by 4,000, to 137,000, in July, the highest since recordkeeping began in December 1972, today's report showed.