New Home Sales Plummet
Dec. 23, 2005 — -- The Commerce Department reported today that sales of new homes dropped 11.3 percent in November. Overall, 1.245 million new single-family homes were sold last month, compared with 1.4 million in October.
That is the largest decline since January 1994. Sales fell in the Midwest, South and West, and increased in the Northeast.
The median sales price of a new home was $225,200, down from $234,800 in October but still up 0.3 percent from last year. Economists at Goldman Sachs say we "should discount this to some degree given the volatility and the fact that existing homes prices are much more important for valuing home equity."
What is going on with the housing market? In October new home sales soared 11.4 percent. Then in November the number plummeted more than 11 percent. Are we on a housing roller coaster? Actually, analysts expected this drop to happen; however, the pullback was larger than many had anticipated.
Despite the drop, November sales were still a healthy 6 percent above last November's home sales. Said economist Joel Naroff, "The huge drop off in demand looks worse than it really is. Sales were still good even if they were the second-lowest this year."
But there are some worrying signs. Inventories of new homes increased to 4.9 months worth of supply, the largest since December 1996. More homes for sale means lower prices.
Although one report does not mean the end of the housing boom, as Naroff points out, "the sharp drop in new home sales may be the first sign that the housing market is finally hitting a wall even if the level is still decent."
Some Christmas present!
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