Mortgage News

New Home Sales in U.S. Decline 5.1 Percent to 1.06 Million Annual Rate

Jan. 28 (Bloomberg) -- U.S. sales of new homes unexpectedly fell in December to a 1.06 million annual pace, the slowest in eight months, suggesting housing will slow after last year's record.

The 5.1 percent decline followed a 2.8 percent decrease to a 1.117 million rate in November, the Commerce Department said in Washington. For all of 2003, sales reached 1.085 million, surpassing the previous all-time high of 973,000 in 2002.

Another 1 million new homes will probably be sold this year, making it the second-best ever, according to projections from the National Association of Home Builders. A rise in mortgage rates as the economy strengthens may soften demand, eliminating housing as a source of economic growth this year.

``We have been at stratospheric levels in sales and starts for so long, that it's not surprising we are seeing a little bit of retrenchment,'' said Avery Shenfeld, a senior economist at CIBC World Markets Inc. in Toronto, who forecast a decline to 1.08 million. ``It's going to be hard for residential construction to grow given the levels it's already attained.''

Economists had expected sales would rise 1.7 percent to a 1.1 million annual rate from a previously reported 1.08 million pace a month earlier, according the median of 57 economists surveyed by Bloomberg News. December sales were the slowest since a 1.004 million rate in April.

Durable Goods Orders

Orders for goods made to last at least three years were unexpectedly unchanged in December, restrained by less demand for metals, communications equipment and appliances, the Commerce Department said earlier.

New home sales account for 15 percent of the market and are considered a harbinger of the resale market for other homes. New home sales are counted when a contract is signed, while data on previous owned home sales are tabulated at the contract's close.

Sales of previously owned homes, surged to the second- highest level on record last month, closing out the best year ever for the industry, the National Association of Realtors said Monday. Combined sales of new and existing homes rose to a record 7.19 million in 2003, beating the previous all-time high of 6.54 million in 2002.

The median price of new homes fell last month to $197,600 from $204,300 in November. Prices rose 3.1 percent last year.

The inventory of new homes for sale rose to a 4.3-month supply in December, the highest since February, from 4.0 months in November, the report showed.

``There are a lot of homes for sale, but not so much that we could conclude there is a glut,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.

Regions

Sales fell 11.2 percent in the West to 292,000 at an annual rate and 8.1 percent in the South to a 501,000 annual rate. They rose 12.2 percent in the Northeast to a 92,000 pace and 8.7 percent in the Midwest to 175,000.

The number of new homes for sale rose to 382,000 last month, from 369,000 in November. The median number of months that new homes have been for sale fell to 3.7 months from 4 months.

The rate on a 30-year fixed mortgage averaged 5.88 percent in December compared with 5.93 percent a month earlier. In June, the 30-year rate reached 5.21 percent, the lowest in 45 years, according to Freddie Mac, the No. 2 buyer of U.S. mortgages.

Falling rates so far this month may be giving sales a boost. An index of mortgage purchase applications in the week ended Jan. 16 rose to the highest on record, the Mortgage Bankers Association said last week. Purchase applications last week declined 10 percent, the group said today. The 30-year fixed mortgage rate has averaged 5.76 percent this month, according to Freddie Mac.

Optimistic

That's keeping builders optimistic. A housing market index registered a reading of 68 this month compared with 70 in December and close to the four-year high of 72 reached in October, the National Association of Home Builders announced today. Figures greater than 50 mean more builders view conditions as good than poor.

At D.R. Horton Inc., the third-largest U.S. homebuilder by stock market value, ``the demand side of our business is excellent,'' said Donald Tomnitz, the company's chief executive officer, in a televised interview with Bloomberg News Thursday. ``In the first part of January here we are seeing our sales still as strong as the previous quarter. We are looking forward to a good solid quarter.

Arlington, Texas-based D.R. Horton announced last week it sold 9,242 homes in the quarter ended Dec. 31, 23 percent more that the same period the previous year.

NVR Inc., which builds homes under the Ryan Homes name, said in a statement yesterday that new orders in the fourth quarter increased 1 percent compared with the same three months of 2002. The number of homes awaiting construction at the McLean, Virginia- based builder, totaled 6,890, 8 percent more than the number at the end of 2002.

Confidence

Consumers' confidence in the economy rose this month to the highest since July 2002 as Americans grew more optimistic about their prospects later this year, according to a report yesterday from the New York-based Conference Board. A separate preliminary report from the University of Michigan earlier this month showed confidence reached a three-year high.

Residential construction accounts for 5 percent of the value of goods and services produced in the U.S. and helps boost spending on furniture, appliances and other home furnishings.

American Standard Cos., the maker of Champion toilets and Trane air conditioners, said yesterday that fourth-quarter earnings rose 15 percent as sales improved 13 percent.

Sales of air conditioners and related services rose about 8 percent to $1.19 billion, accounting for about 56 percent of total sales in the quarter. Sales of bathroom and kitchen fixtures, like faucets and toilets, rose about 13 percent to $566 million, accounting for about 27 percent of revenue.

``The consumer has hung in there remarkably well,'' said Frederic Poses, chief executive officer of American Standard, in an interview Monday from Piscataway, New Jersey. ``I think consumers and retail are going to be good in 2004. Sales are good.''

The economy will probably expand 4.6 percent this year, the best performance since 1984, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators. The world's largest economy is forecast to have grown 3.1 percent in 2003.

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