Drop in December new-home sales fuels concern over recent gains
Thursday, January 28, 2010
The battered market for new homes ended 2009 with a whimper, according to government data released Wednesday, fueling concern that recent improvements in the housing sector could be short-lived.
In December, new-home sales fell 7.6 percent from the previous month, to a seasonally adjusted annual rate of 342,000, according to the Commerce Department. Sales were down 8.6 percent compared with the same period a year earlier.
Analysts had expected sales to rise, and the disappointing figures capped one of the worst years for home builders in decades. Overall, only 374,000 new homes were sold in 2009, down 22.9 percent from 2008. That is less than half the sales volume of a normal market, 900,000 to 1 million homes, and the lowest total on record, dating to 1963, according to National Association of Home Builders. At the peak of the market, in 2005, nearly 1.3 million new homes were sold.
Cold weather might have contributed to the December decline, economists said. They added that the drop might also have been fueled by buyers who rushed to complete new-home purchases before the original November deadline for a lucrative tax credit for first-time home buyers. Builders also continue to face several basic market challenges, including competition with cheap foreclosed homes and a weak economy that is keeping some potential customers away, they said.
"The economy is getting stronger, but we're still losing jobs," said Bernard Markstein, a senior economist at the National Association of Home Builders. "If you ask the average person, they think we're still in recession."
Congress extended the tax credit and expanded it to more potential buyers, which industry officials are hoping will spur more sales this year. But the weak numbers reinforce some economists' fears that the housing market could stumble when government measures to boost sales, including ultra-low interest rates and the home-buyer tax credit, expire later this year.
"With fingers crossed, I expect January to be no worse and maybe a little better. But by February and March, we expect to see the impact of the tax credit," Markstein said.
The declines in December were concentrated in the Midwest, which had a 41.1 percent drop. The market in the South, which includes the Washington area, also softened, with sales falling 7.3 percent.
Builders have slashed prices and severely scaled back construction as they wait for the market to rebound. By the end of December, there were only about 231,000 new homes for sale, the smallest inventory since April 1971. Median new-home prices were down 3 percent, to $221,300, compared with the same period the previous year.
The report "further adds to the sense that the housing rebound has sputtered," Michael Feroli, an analyst for J.P. Morgan Chase Bank, said in a research note. The market has improved in some aspects, "but the momentum has clearly fizzled into year-end."