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Previously owned homes sales fell october 2005 Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aOOMP_Qv3Qbs&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aOOMP_Qv3Qbs&refer=home
U.S. Existing Home Sales Fall More Than Forecast (Update4)
Nov. 28 (Bloomberg) -- Rising mortgage rates and skyrocketing prices put home-buying out of reach for more Americans in October, a new report showed.
Sales of previously owned U.S. homes fell a greater-than- expected 2.7 percent last month to a 7.09 million annual rate, the slowest since March, the National Association of Realtors said today in Washington. The number of unsold homes was the highest since April 1986.
Housing affordability, already at a 14-year low last quarter, will continue to drop and deprive the economy of a source of strength in coming months, economists said. Today's report showed the median price rose about 17 percent over the past year to $218,000, the biggest jump in 26 years. The average 30-year fixed mortgage rate exceeded 6 percent in October and has kept rising since then.
``The peak in home sales activity is behind us,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland. ``So far, it's a gentle trek down.'' Housing ``will present a drag for the economy,'' DeKaser said.
Existing home sales fell from September's 7.29 million annual rate. Economists surveyed by Bloomberg News forecast home resales would fall to a 7.2 million annual pace from September's previously reported 7.28 million pace, according the median of 54 estimates. The pace reached a record 7.35 million in June.
Effect on Economy
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.
Resales, which account for about 85 percent of the residential real estate market, are tabulated at contract closings and reflect buying decisions made a month or two earlier. New-home sales are counted when a contract is signed, making them a better gauge of current activity, economists said.
The report on new home purchases is due tomorrow from the Commerce Department. Sales are forecast to fall to a 1.2 million annual pace, from 1.222 million in September, according to the median estimate of economists surveyed by Bloomberg News.
Homebuilder shares fell today. A Standard & Poor's index of 16 builders including Centex Corp. and D.R. Horton Inc. dropped 29.5 points, or 3.2 percent, as of 2:35 p.m. in New York.
Sales of previously owned homes would have been even weaker last month had it not been for gains the areas of Baton Rouge, Louisiana, and Houston, reflecting demand from people displaced by Hurricane Katrina. The Realtors group said sales would have declined 3.2 percent in October to a 7.06 million pace excluding sales in response to the hurricane.
Median Price
``The housing sector has likely passed its peak,'' said David Lereah, chief economist at the National Association of Realtors, during a press conference. ``The boom is winding down to an expansion. Housing activity is still healthy.''
The median price rose to $218,000 last month from $187,000 in October 2004, the Realtors' group said. The year-over-year increase was the biggest since July 1979. The median price was $213,000 in September.
Sales of single-family homes fell 2.5 percent to a 6.23 million annual pace in October. Sales of condos and co-ops fell 4.4 percent to an 862,000 annual pace.
``The evidence keeps piling up that the housing market is slowing moderately,'' said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, Minnesota, in an interview. ``We certainly think housing will weigh on GDP growth next year.''
Supply of Homes
Sales were lower in all four regions. They dropped 7.4 percent in the Northeast to a 1.12 million-unit pace, 1.9 percent in the Midwest to a rate of 1.58 million units, 1.8 percent in the South to 2.76 million units, and 1.2 percent in the West to 1.64 million units.
The supply of homes available for sale, another gauge of housing demand, rose to 2.87 million in October from 2.77 million. Supply represented 4.9 months' worth at the current sales pace, up from 4.6 months' worth the previous month.
The rate on a 30-year fixed mortgage averaged 6.07 percent in October, the highest monthly average since June 2004, from 5.77 percent a month earlier, according to Freddie Mac, the No. 2 purchaser of home loans behind Fannie Mae. The rate reached a two-year high of 6.37 percent two weeks ago.
Rising rates and higher prices caused the Realtors' group affordability index to drop to 117.8 in the third quarter, the lowest since the third quarter of 1991. Still, figures greater than 100 suggest households have the income needed to purchase a property at the median home price.
Outlook for Growth
``The housing market had remained robust, although a slowing in house price gains in some areas and recent declines in home equity lending at banks could be indicating that the long-expected cooling in the housing market was near,'' Federal Reserve policy makers said in the minutes of their Nov. 1 meeting released last week.
A more pronounced slowing in housing than most economists expect could be the catalyst for the central bank to lower their interest rate target in early 2007, according to economists at Goldman, Sachs & Co. in New York. The Fed targets the rate at which banks lend money to each other overnight, also called the federal funds rate.
A slowdown in housing could slice as much as 1.5 percentage points from economic growth in the next couple of years, according to a Nov. 18 report by Goldman Sachs economists Jan Hatzius and Monica Fuentes. ``This would probably be enough to persuade Fed officials to cut their federal funds target'' in 2007, said Hatzius and Fuentes.
The risks to the economy posed by the housing market aren't lost on Ben Bernanke, the White House nominee to succeed Alan Greenspan as Fed chairman.
Fed
A slowdown in housing prices that isn't ``too sharp,'' ``should be consistent with the modest cooling of growth that many forecasters expect over the next year or so,'' Bernanke said last week in written responses to questions posed by Senator Jim Bunning, the lone Banking Committee member to vote against his nomination. A sharper slowdown, which he said is less likely, ``would have a larger effect on the growth of real output.''
``It's not the beginning of the end as we see it,'' said Joel Rassman, chief financial officer of Toll Brothers Inc., the largest U.S. builder of luxury homes, in a Nov. 14 interview. ``Most of our markets are strong. They're just not as strong as last year.''
Earlier this month Toll lowered its forecast of the number of homes it will sell in fiscal 2006 to 9,500 to 10,200, from the 10,200 to 10,600 it projected on Aug. 25.
Last Updated: November 28, 2005 14:43 EST
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