New home sales plunge
WASHINGTON (AP) - December 28, 2007 The slump worsened even more than most analysts expected,
heightening fears that the country might be thrust into a
recession.
New-home sales tumbled 9 percent in November from October to a
seasonally adjusted annual sales pace of 647,000, the Commerce
Department reported Friday. That was the worst sales pace since
April 1995.
"It was ugly," declared Richard Yamarone, economist at Argus
Research. "It is the one sector of the economy that doesn't show
any signs of life. It doesn't look like there is any resuscitation
in store for housing over the next year," he said.
The housing picture turned out to be more grim than most
anticipated. Many economists were predicting sales to decline by
1.8 percent to a pace of 715,000.
By region, sales fell in all parts of the country, except for
the West.
In the Midwest, new-home sales plunged 27.6 percent in November
from October. Sales dropped 19.3 percent in the Northeast and fell
6.4 percent in the South. In the West, however, sales rose 4
percent.
Over the last 12 months, new-home sales nationwide have tumbled
by 34.4 percent, the biggest annual slide since early 1991, and
stark evidence of the painful collapse in the once high-flying
housing market.
"I think you can classify what we are seeing in the housing
market as a crash," said Mark Zandi, chief economist at Moody's
Economy.com. "Sales and home prices are in a free fall. The
downturn is intensifying."
The median sales price of a new home dipped to $239,100 in
November. That is 0.4 percent lower than a year ago. The median
price is where half sell for more and half for less.
On Wall Street, the Dow Jones industrials, after an erratic
session, managed to squeeze out a small gain even as the grim home
sales report added to some investors' angst. The Dow closed up 6.26
points at 13,365.87.
Would-be home buyers have found it more difficult to secure
financing, especially for "jumbo" mortgages - those exceeding
$417,000. The tighter credit situation is deepening the housing
slump. Unsold homes have piled up, which will force builders to cut
back even more on construction and look for ways to sweeten the pot
to lure prospective buyers.
"A lot of borrowers are being disqualified for loans. If you
can't qualify for a mortgage the game is over. For those who do
qualify, it takes longer to get loans," said Brian Bethune,
economist at Global Insight.
The housing market has been suffering through a severe slump
following five years of record-breaking activity from 2001 through
2005. Sales turned weak as did home prices. The boom-to-bust
situation has increased dangers to the economy as a whole and has
been especially hard on some homeowners.
Foreclosures have soared to record highs and probably will keep
rising. A drop in home prices left some people stuck with balances
on their home mortgages that eclipsed the worth of their home.
Other home buyers were clobbered as low introductory rates on their
mortgages jumped to much higher rates, which they couldn't afford.
Problems in housing are expected to persist well into 2008 - a
major election year.
The housing and mortgage meltdowns have raised the odds that the
country will fall into a recession. And, the situation has given
Democrat and Republican politicians- including those who want to be
the next president - plenty of opportunities to spread blame
around.
The economy's growth is expected to have slowed sharply to a
pace of just 1.5 percent or less in the final three months of this
year. Former Federal Reserve Chairman Alan Greenspan recently
warned that the economy is "getting close to stall speed." The
big worry is that the housing and credit troubles will force
individuals to cut back on spending and businesses to cut back on
hiring and capital investment, throwing the economy into a
tailspin.
To help bolster the economy, the Federal Reserve has sliced a
key interest rate three times this year. Its latest rate cut, on
Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year
low. Many economists are predicting the Fed will lower rates again
when they meet in late January.
"The risks are as high as they've ever been during this
expansion that started in late 2001 that the economy will fall into
a recession," said Bethune. "The odds are now nudging up close to
the 50 percent mark."
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On the Net:
New-home sales report: https://www.esa.doc.gov/ei.cfm