New Homes Sales Plummet

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Article

 

South Florida Sun-Sentinel.com

Home market worsens

U.S. sales pace is lowest since 1995

By Jeannine Aversa

 

The Associated Press

 

December 29, 2007

 

WASHINGTON

 

The housing market plunged deeper last month, with sales of new homes plummeting to their lowest level in more than 12 years.

 

The slump worsened even more than most analysts expected.

 

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," said 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."

 

Many economists were predicting sales to decline 1.8 percent to a pace of 715,000.

 

Although the government doesn't release new-home sales figures for South Florida, builders in the region have been battered by the long downturn. Many have scaled back operations, laid off employees and kept pressing to lure buyers with incentives. One builder, Levitt and Sons of Fort Lauderdale, recently sought Chapter 11 bankruptcy protection from its creditors.

 

By region, sales fell in all parts of the country except the West, where sales rose 4 percent.

 

In the Midwest, new-home sales plunged 27.6 percent in November from October's level. Sales dropped 19.3 percent in the Northeast and fell 6.4 percent in the South.

 

Over the last 12 months, new-home sales nationwide have tumbled 34.4 percent, the biggest annual slide since early 1991.

 

"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 in November to $239,100 — 0.4 percent lower than a year ago. The median price divides where half sell for more and half for less.

 

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. The large number of unsold homes likely 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 in a severe slump after five years of record-breaking activity from 2001 through 2005. Sales turned weak, as did home prices.

 

The boom-to-bust sequence has increased dangers to the economy as a whole.

 

Foreclosures have soared to record highs. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the market values of their homes. Other home buyers saw low introductory rates on their mortgages jump to much higher rates they couldn't afford.

 

The big worry is the housing and credit troubles will force individuals to cut back on spending and businesses to cut back on hiring and capital investment.

 

Former Federal Reserve Chairman Alan Greenspan recently warned that the economy is "getting close to stall speed."

 

To 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.

 

Copyright © 2007, South Florida Sun-Sentinel