Dipping Market on New Home Sales Expected

Annual pace, below 1 million, posts biggest monthly decline in 13 years; rising glut of homes for sale hits prices. New home sales saw their steepest plunge in 13 years in January, a government report said Wednesday, as a rising glut of new houses on the market pushed prices lower. Economists surveyed by Briefing.com had forecast only a narrow drop to a 1.08 million pace. New homes sold at an annual rate of 937,000, down 16.6 percent from the December reading of 1.1 million.

The South, which accounts for more than half of the nation's new home sales, saw January's pace off nearly 10 percent compared to December. The decline in sales hit every region of the country, from a 8.1 percent drop in the Midwest to a 37.4 percent dive in the West.

It is also the sixth largest one-month fall on record. The percentage decline was biggest for a single month in 13 years, since the record 23.8 percent decline seen in January 1994.

Mike Larson, real estate analyst at Weiss Research in Jupiter., Florida, writes "Let's cut to the chase - these numbers were ugly," and also added "While the month-to-month changes in new home sales figures can be volatile, the magnitude of the decline is impressive."

Larson continued "This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking," then follows up with "And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I don't expect a true, lasting rebound in housing until at least 2008."

"The sharp drop in January might have been fed by stronger-than-expected sales in November and December, when much of the country had unseasonably warm weather. The new home sales are recorded at the time a sales contract is signed, rather than when the sale is closed." David Seiders, chief economist for the National Association of Home Builders, said.

"It's obvious the market has not lifted off the ground yet," He said. The January sales pace is the lowest since February 2003, before the start of the building boom that flooded the market with new homes available for sale and put downward pressure on prices and builders' earnings. Median is the point at which half the homes sell for more and half sell for less. The median price of a new home fell 2.1 percent from a year earlier to $239,800, although that was $400 above the December price level.

And the report doesn't capture the entire decline in pricing power for builders, since a majority of them are offering extra features at no additional cost, agreeing to pay buyers' closing expenses and other incentives to move houses. The latest median price is down 6.7 percent from the record high reached in April 2006.

The report shows a record 175,000 completed homes for sale in January, the eighth straight month that reading has risen to a record level. The prices have seen downward pressure from the glut of completed homes on the market available for sale. The median time it takes a completed home to sell now stands at 4.8 months, the longest wait for builders since July 2001, when the nation was in a recession.

By: Jron Magcale

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