U.S. Property Market: Indices & News

U.S. Economy: Existing Home Sales Fall to Lowest in 8 Months

Dec. 29 (Bloomberg) -- Sales of existing homes fell to an eight-month low in November, leaving the number of houses on the market at the highest since 1986 and suggesting one pillar of the U.S. economy will weaken next year.

Home sales dropped 1.7 percent to a 6.97 million annual rate, the National Association of Realtors said today in Washington. Mortgage rates are higher than a year ago and today's report showed the median price rose 13.2 percent since November 2004 to $215,000, making homes less affordable.

The housing slowdown means the world's largest economy may have to depend more on businesses and less on the consumer next year. Chicago-area manufacturing held above the year's average this month and orders increased, a purchasing managers survey showed today. Companies are confident enough to keep hiring, the latest initial jobless claims report suggested today.

``The cooling U.S. housing sector should apply a dampener to consumer spending as 2005-2006 unfolds, but some of this could be offset by still-decent job growth,'' Sherry Cooper, chief economist at BMO Nesbitt Burns in Toronto, said in a report. ``Business spending is starting to take the economic growth baton from consumers.''

The National Association of Purchasing Management-Chicago said its Business Barometer fell to 61.5 from 61.7 in November, remaining above its average 60.7 for the year. A figure higher than 50 signals growth. A gauge of prices paid by manufacturers fell from a 26-year high.

The number of Americans filing first-time claims for unemployment benefits rose 3,000 to 322,000 last week, staying below the year's average and suggesting the job market is still growing, today's Labor Department report showed. The four-week moving average, a less volatile measure, rose by 250 to 325,000.

Home Sales

The housing industry accounts for only about 5 percent of the U.S. economy and yet generated half of the growth in this year's first six months and more than half of the private jobs added since 2001, Merrill Lynch & Co. said in an August report. Price appreciation helped add $5.2 trillion to Americans' balance sheets during the current expansion, or 68 percent of all wealth creation, according to the Federal Reserve.

The benchmark 10-year note's yield was little changed at 4.38 percent as of 10:35 a.m. in New York. The two-year note also yielded 4.38 percent, resulting in a so-called flat yield curve that may reflect potential for the economy to slow.

``Housing has certainly been an important driver of economic growth,'' said Carl Riccadonna, an economist at Deutsche Bank in New York. ``Nonetheless, we are looking for a solid 2006 with business spending to pick up the slack.''

Housing Has `Peaked'

Existing-home purchases, which account for about 85 percent of the residential real estate market, slowed in all four regions and are down from a record 7.35 million pace in June. New-home sales fell 11 percent in November, the most in 11 years, the Commerce Department said Dec. 23

``Housing activity has peaked,'' said David Lereah, chief economist at the Realtors group, which predicts sales of previously owned homes will fall to 6.84 million in 2006 from a projected record 7.1 million this year.

Economists expected November sales to fall to a 7 million annual rate from 7.09 million in October, based on the median forecast in a Bloomberg News survey. November's reading was the lowest since 6.87 million in March.

The supply of existing homes for sale, another measure of housing demand, increased to 2.903 million in November, the highest since 1986. That represented 5 months' worth of sales at the current pace, up from 4.9 months in October. Last week's Commerce Department report also showed a record number of new homes left on the market.

Home Prices

The rate of price appreciation probably will slow next year, economists and industry executives said. Housing affordability was at a 14-year low in the third quarter, according to the Realtors' group.

``Our price increases are moderating some from what they were in the past,'' Donald Tomnitz, chief executive officer of D.R. Horton Inc., said in an interview Dec. 12. ``But we think that's a good thing.''

The average price on a D.R. Horton home climbed 8.6 percent in its fiscal fourth quarter to $261,405 and sales rose 38 percent to 18,622 units. D.R. Horton is the largest U.S. homebuilder.

Resales of single-family homes fell 1.9 percent to a 6.11 million annual pace in November. Sales of condos and co-ops dropped 0.8 percent to a 857,000 rate.

Existing home sales are counted when a contract is closed and reflect buying decisions made a month or two earlier. New- home sales are tabulated at the time a contract is first signed.

Mortgage Rates

Rising interest rates are contributing to the slowdown.

The average rate on a 30-year fixed mortgage was 6.33 percent in November, up from 6.07 percent the month before and the highest monthly average since July 2002, according to Freddie Mac. The rate has stayed above 6 percent since July.

The Fed on Dec. 13 raised its benchmark lending rate for a 13th consecutive time, to 4.25 percent, to slow inflation. Economists surveyed by Bloomberg forecast the Fed will raise rates by a quarter percentage point in the first quarter.

The Realtors group's index of pending home resales fell 3.2 percent in October. The gauge, reported in Dec. 6, may be more current than existing home sales because it measures transactions at the time the purchase agreement is signed.

Home resales declined in all four regions during November, today's report showed. They dropped 3.7 percent in the West to 1.85 million; 2.7 percent in the Northeast to 1.09 million; 1.3 percent in the Midwest to 1.56 million; and 0.7 percent in the South to 2.74 million.

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