| Sales of new homes plunged 11 percent { March 25 2006 } Original Source Link: (May no longer be active) http://msnbc.msn.com/id/11994607/http://msnbc.msn.com/id/11994607/
Signs of slowdown in US housing By Christopher Swann in Washington
Updated: 12:46 a.m. ET March 25, 2006
Sales of new US homes plunged 10.5 per cent last month, prices fell and the stock of unsold homes hit its highest level in 10 years, providing the clearest indications yet that the red-hot housing market may be cooling.
A big slowdown could prompt consumers to cut spending and boost savings. Such a shift could help reduce the current account deficit but at the cost of significantly slower growth.
New home sales slid to 1.08m, the fourth consecutive decline, and the price of new homes fell 3 per cent from a year ago. With a flood of new properties coming on to the market, at the present pace of sales, it will take 6.3 months to clear the backlog.
Economists have long been expecting a slowdown and some have predicted declines in prices. "New home sales are softening fast," said Celia Chen, a housing expert at Economy.com. "Affordability has declined to a near 15-year low. Rising mortgage interest rates and rising house prices are constraining demand."
Ian Morris, economist at HSBC, said: "Over the next 12 months we suspect a hard landing is more likely." But there had been regional factors in the slowdown. Sales fell in the west but rose in the midwest and north-east.
The rising stock of unsold houses could lower prices still further. Research at HSBC suggests that seven months' supply of unsold housing will mean a soft landing for the market. But if the figure rises towards nine months it will be a hard landing.
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