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New Home Sales Sink In January

Sales at lowest point since 1995

By Mark Huffman
ConsumerAffairs.com

February 28, 2008

"While home builders are reporting some glimmers of buyer interest starting to develop, many consumers are still firmly planted on the fence, waiting for just the right incentive to make their move," said Sandy Dunn, president of the National Association of Home Builders (NAHB) and a home builder from Point Pleasant, W.Va.

Dunn and other struggling homebuilders, many who made millions during the real estate boom of the early 2000s, would like a little help from Washington.

"Clearly, now would be an ideal time for Congress to follow up on its recently enacted economic stimulus program by passing legislation such as a home buyer tax credit that would help push those who are on the edge of a home buying decision off that fence and into the home of their dreams," Dunn said. "Such action would reduce the inventory of units on the market and help restore housing to its historic role as a primary engine of economic growth."

NAHB Chief Economist David Seiders believes incentives from Washington would help close some deals, observing that traffic of prospective buyers is healthy – they just aren't signing on the dotted line.

"It stands to reason that policy measures to stimulate housing demand could be a powerful force and help bring about a housing and economic recovery," Seiders said.

Three out of four regions posted lower new-home sales in January, with a 10.3 percent decline reported in the Northeast, a 7.6 percent decline reported in the Midwest and a 2.4 percent decline reported in the South. The West posted a 2.2 percent gain for the month, following a large decline in December.

While the inventory of new homes for sale was down 2.2 percent to 482,000 units in January, the supply of units at the current sales pace edged up to 9.9 months, its highest level since April of 1982.

The median length of time that completed homes were on the market was 6.7 months in January, up from 6.2 months in December and 4.8 months a year earlier.

More bad news

The National Association of Realtors reports sales of single-family, townhomes, condominiums and co-ops, slipped 0.4 percent to a seasonally adjusted annual rate of 4.89 million units in January from an upwardly revised level of 4.91 million in December, and are 23.4 percent below the 6.44 million-unit pace in January 2007.

"Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales," said Lawrence Yun, NAR chief economist.

"As the increased limits for FHA and conventional loans are implemented, more buyers will have access to safer FHA loans and lower interest rate loans in high-cost areas, which could lead to steadily higher home sales later in the year."

But until then, he says, many potential homebuyers are being kept on the sidelines. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.76 percent in January from 6.10 percent in December; the rate was 6.22 percent in January 2007. Last week, Freddie Mac reported the 30-year fixed rate rose to 6.04 percent.

The national median existing-home price for all housing types was $201,100 in January, down 4.6 percent from a year ago when the median was $210,900. Because the slowdown in sales is greater in high-cost markets, there is a downward pull to the national median from a year ago when there were relatively more sales in higher priced areas, the group said.

Price changes within metropolitan areas may be more meaningful for consumers. The latest data shows roughly half of the metro areas in the U.S. with price gains, with increases in markets such Buffalo, Peoria and Amarillo. "Some markets like Barnstable, Mass., which had been weakening in the past year, may have turned the corner," Yun said.

"Keep in mind the biggest slowdown in home sales last year was in high-cost markets, which were hard-hit by the credit crunch and notably higher interest rates for jumbo loans, but relief is on the way," said NAR President Richard Gaylord.

Inventory grows

Meanwhile, there are more houses to choose from. Total housing inventory rose 5.5 percent at the end of January to 4.19 million existing homes available for sale, which represents a 10.3-month supply(3) at the current sales pace, up from a 9.7-month supply in December.

Single-family home sales rose 0.5 percent to a seasonally adjusted annual rate of 4.34 million in January from 4.32 million in December, and are 22.4 percent below 5.59 million-unit pace in January 2007. The median existing single-family home price was $198,700 in January, down 5.1 percent from a year ago.

Existing condominium and co-op sales fell 6.5 percent to a seasonally adjusted annual rate of 550,000 units in January from 588,000 in December, and are 30.2 percent below the 788,000-unit level a year ago. The median existing condo price(4) was $220,400 in January, which is 1.0 percent lower than January 2007.

Regionally, existing-home sales in the Midwest rose 3.4 percent to an annual pace of 1.20 million in January, but are 20.0 percent below January 2007. The median price in the Midwest was $154,200, down 4.0 percent from a year ago.

Existing-home sales in the South slipped 0.5 percent in January 2007 to a level of 1.95 million and are 22.0 percent below a year ago. The median price in the South was $164,300, which is 5.9 percent lower than January 2007.

In the West, existing-home sales declined 2.1 percent to an annual rate of 930,000 in January and are 28.5 percent below January 2007. The median price in the West was $300,100, down 6.7 percent from a year ago.

Existing-home sales in the Northeast fell 3.6 percent to an annual rate of 810,000 in January, and are 25.7 percent below a year ago. The median price in the Northeast was $270,800, up 3.1 percent from January 2007.

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