New-Home Sales Rise, but Not Hopes for Next Year

A home for sale is decorated for Halloween in Lancaster, N.Y., Wednesday, Oct. 24, 2007. Sales of existing homes plunged by a record amount in September as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years. (AP Photo/David Duprey) (David Duprey - AP)

New-home sales rose 4.8 percent in September, but the increase did little to dampen pessimism about the industry's prospects for the next year.

The Commerce Department report showed that housing starts in September rose from the previous month, to a seasonally adjusted annual rate of 770,000 units. Sales were down 23 percent compared with the same month a year ago.

At the end of September, there were 523,000 unsold homes on the market; at that pace, it would take 8.3 months to dispose of them. The median sales price, the point at which half the homes are sold for more and half for less, rose 2.5 percent, to $238,000.

"It's still bad news," said Guy Cecala, publisher of Inside Mortgage Finance. "I think August was probably the worst month in recent memory for the housing market and September was the second-worst month." He added, "I don't think we're seeing any progress, and I don't expect to see any progress for the rest of this year."

"There is no way that this signals an end to a housing downswing," said David Seiders, chief economist for the National Association of Home Builders. "I think there is still downward momentum in sale activity that would continue into the early part of next year."

The report showed that the past three months of new-home sales were worse than previously thought. In August, for example, the Commerce Department now estimates that 736,000 homes were sold, down from its previous estimate of 797,000. In July, 798,000 homes were sold, not 867,000 as previously estimated.

"August was even worse than we thought, and I wouldn't be surprised if these [September figures] were revised lower, too," said Mark Zandi, chief economist of Moody's Economy.com.

The Commerce statement comes on the heels of a National Association of Realtors' report that sales of existing homes fell 8 percent in the same period. Analysts said the difference likely reflects homeowners' hesitance to drastically lower prices to secure a sale while builders have been slashing prices, cutting production and offering incentives. The new-home figure "got a bit of a pop because of the fire sales" being held by builders, Zandi said.

The increase was focused mostly in the West, where sales grew by 38 percent. They also rose 0.5 percent in the South, the region that includes the Washington area. They were down 20 percent in the Midwest and 7 percent in the Northeast. Analysts said the increase in the West reflected heavy discounts used by builders in California to offload homes.

A recent survey of builders found that 60 percent of them had cut prices to move their inventory, Seiders said. "You could say that the builders are probably out in front of the normal homeowner in terms of recognizing the reality."

The housing slump, particularly among borrowers who took out risky, subprime loans, has attracted the attention of Congress, which has called for industry reform. The Joint Economic Committee predicted yesterday that about 2 million subprime borrowers will lose their homes to foreclosure through 2009, costing them and their communities $71 billion in housing wealth. The report predicted that the problems in that sector would spread to other parts of the economy as foreclosure rates increase and home prices stagnate or decline.

"State by state, the economic costs from the subprime debacle are shockingly high," said Charles E. Schumer (D-N.Y.), chairman of the committee. "From New York to California, we are headed for billions in lost wealth, property values and tax revenues."

In Virginia, the report estimated that of the 183,171 subprime loans outstanding in the state, 25,752 would go into foreclosure by the end of 2009, resulting in property value losses of about $2.1 billion. In Maryland, 25,057 of 168,438 loans would go into foreclosure, causing $2.7 billion in lost property value. In the District, the report estimates 1,971 foreclosures of 11,356 subprime loans, with a loss in property value of $256 million.