Sales Soar as Prices Plummet

By Allan Lengel
Washington Post Staff Writer
Friday, May 25, 2007

New-home sales nationwide increased in April by the biggest margin in 14 years, but industry experts remained skeptical about the health of the real estate market, citing a record decline in prices and nagging uncertainty among builders.

"In terms of the home builder industry, the bad times are not over," said Gregory E. Gieber, vice president of research at A.G. Edwards, a brokerage firm. "This is probably one of the worst recessions I've ever seen for housing."

The Commerce Department reported yesterday that April sales of single-family homes jumped 16.2 percent from March to a seasonally adjusted annual rate of 981,000 homes.

The sales figures far surpassed the industry expectation of a 0.2 percent increase, economists said, but fell 10.6 percent short of the April 2006 estimate of nearly 1.1 million homes.

The median sales price of new houses sold in April was $229,100, down 11.1 percent from March, the largest monthly decline on record, according to the Commerce Department. The median is the point where half the houses sell for more and half for less.

More than 40 percent of the sales recorded in April were for homes $200,000 or less, according to the Commerce Department. And home builders slashed prices to trim inventory.

"The very sharp decline in the median price suggests many sales occurring now are coming at the expense of quite a bit of discounting of homes," said Celia Chen, director of housing economics for Moody's

"I don't think this increase is sustainable, and I think there's a good chance the numbers will be revised in the following month."

The report did show that builders are working through their inventory of unsold houses. The seasonally adjusted estimate of new houses for sale at the end of April was 538,000, which represents a 6.5-month supply based on the current sales rate. In March, the supply was an adjusted 8.1 months.

The new figures came as Pennsylvania-based Toll Brothers, the largest builder of luxury homes in the country, released figures showing profit fell sharply in the quarter ended April 30, and the company took significant charges to write down land values.

"Our perception of the market is definitely not as upbeat as the new-home sales data that came out today suggests," said Frederick N. Cooper, senior vice president of finance for Toll Brothers. "While we see some bright spots across the country, in general, it remains a challenging market."

David F. Seiders, chief economist for the National Association of Home Builders, said the government's numbers may not accurately reflect what's happening.

"There's some skepticism of the reliability of the numbers," he said. "Other indicators at hand don't really suggest this kind of snapback. I wouldn't be surprised by some downward revision of April figures and some downward numbers in May."

Chen echoed the skepticism about yesterday's statistics. "It's probably too soon to declare the end of the housing correction," she said. "It could be the beginning of the end, but I think we need to watch the numbers in coming months."

Nishu Sood, a home building analyst at Deutsche Bank Securities, offered little optimism, saying, "We expect home prices are going to continue to decline in the second half of the year. We expect demand to be weak the remainder of the year."

Today, the National Association of Realtors is scheduled to release statistics on sales of existing homes in April.

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