New-home sales fall for first time since February

Thursday, July 27th, 2006

USA Today

WASHINGTON (Reuters) — Sales of new homes fell more than expected in June to a seasonally adjusted annual rate of 1.131 million and the median home price fell for the second month in a row, the government reported Thursday, as the U.S. housing market showed more signs of cooling.

The 3% drop in new-home sales was the first decline since February, the Commerce Department said. Compared with a year earlier, new-home sales were down 11.1%.

Analysts polled by Reuters were expecting new-home sales to cool to a 1.160 million annual rate.


The government reported that the median price of a new home was $321,300 in June, which was up just 2.3% from a year ago and was down 1.5% from May.

It left the number of unsold homes at a record high of 566,000. At the June sales pace, it would take 6.1 months to sell the backlog of homes, a figure that is up sharply from the 4.3-month supply of unsold homes a year ago when the housing market was still booming.

Sales of both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control. Analysts are looking for home sales to drop by around 10% this year.

Economists are looking for new-home sales to slow further as mortgage rates continue to rise, putting increased downward pressure on prices.

The big worry is that home sales will fall so sharply that it could send shockwaves through the entire economy, much as the bursting of the stock market bubble in 2000 contributed to the 2001 recession. But so far, economists said the decline in housing is contributing to a slowdown in the overall economy but they are not forecasting a recession.

Regionally, home sales tumbled 11.3% in the volatile Northeastern housing market to 55,000, the slowest pace since July 2004. New-home sales slipped 6% in the South and 7.9% in the Midwest, but they rose 8.2% in the West.

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