FYI: Number of Unsold Homes Hits Record High

Number of Unsold Homes Hits Record High
Monday February 27, 7:25 pm ET
By Martin Crutsinger, AP Economics Writer
Number of Unsold Homes Hits Record High in January, Shows That Market
May Be Cooling

WASHINGTON (AP) -- The backlog of unsold new homes reached a record
level last month, as sales slipped despite the warmest January in more
than 100 years.

The Commerce Department reported Monday that sales of new
single-family homes dropped by 5 percent to a seasonally adjusted
annual rate of 1.233 million units last month.

That was the slowest pace since January 2005 and left the number of
unsold homes at a record high of 528,000.

Analysts viewed the new data as further evidence that the nation's
red-hot housing market, which hit record sales levels for five
straight years, has definitely started to cool.

"The decline in new home sales in January makes it clear that there is
some real softening in the housing market," said Joel Naroff, chief
economist at Naroff Economic Advisors.

On Wall Street, tumbling oil prices helped lift investors' spirits.
The Dow Jones industrial average rose 35.70 points to close at
11,097.55 on Monday.

The 5 percent decline was bigger than expected, dashing hopes that the
milder-than-normal January would help to bolster demand. The warm
weather had pushed up the level of construction starts last month by
14.5 percent, the fastest rate in three decades.

But the new report showed that with sales lagging, the increase in
building activity left a total of 528,000 new homes still for sale at
the end of the month, a nine-year high.

Even with the softening in sales, prices were up in January with the
median price climbing to $238,100, up 4 percent from December, but
below the all-time high of $243,900 set in October.

For the past few years, home prices have been surging at double-digit
rates, gains that analysts said will likely slow now that sales are
softening and inventories of unsold-homes are rising.

Ian Shepherdson, chief U.S. economist at High Frequency Economics,
predicted "real downward pressure on prices over the next few months."

David Seiders, chief economist at the National Association of Home
Builders, said surveys showed that the number of builders who are
throwing in various amenities for free in order to move homes has
risen to 41 percent.

Seiders predicted that home price gains, which were running around 12
percent last year, will slow to about 6 percent this year.

He said a lot of this year's change will reflect less speculative
investor activity and more sales spurred by people desiring to live in
the homes. "Hopefully, that is all that is developing here," Seiders
said.

Some economists are worried that with the inventory of unsold homes
rising, there could be significant downward pressure on home prices,
triggering a chain-reaction similar to the bursting of the stock
market bubble in 2000, a development that contributed to the 2001
recession.

But new Federal Reserve Chairman Ben Bernanke told Congress earlier
this month that for now he was looking for a moderate slowdown in the
housing industry, not a crash.

The 5 percent January drop in sales followed a revised 3.8 percent
increase in December and was the biggest setback since a 7 percent
drop in November.

The biggest decline in sales was a 14.9 percent decrease in sales in
the Northeast, which followed an even bigger 23 percent plunge in
sales in December. Sales in the Midwest were down 10.8 percent after
having risen by 21.2 percent in December.

In the South, sales fell by 10.3 percent in January, following a 1.2
percent gain in December.

Bucking the national trend, sales in the West posted an 11.3 percent
increase in January after a 6.3 percent gain in December.

Mortgage rates have been rising gradually with the 30-year mortgage
now at 6.26 percent, according to the latest Freddie Mac survey. Many
analysts believe 30-year mortgages will rise to between 6.5 percent to
7 percent by the end of this year.

They think that increase will be enough to trim sales of both new and
existing homes and slow the double-digit gains in prices seen in
recent years. The National Association of Realtors reported earlier
this month that a record 72 metropolitan areas saw double-digit gains
in home prices in the final three months of 2005 compared with price
levels at the end of 2004.