New Home Sales Fall in January

Sales of new homes fell for the second time in three months in January, providing further evidence that the nation's five-year housing boom is slowing. 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 a bigger drop than analysts had been expecting, after setting sales records for five straight years, is slowing under the impact of rising mortgage rates. Despite the fall in sales, the median price of a new home was up in January to $238,100, compared with $229,000 in December. Mortgage rates have been rising gradually for a number of months with the 30-year mortgage now at 6.26 percent, according to the latest Freddie Mac survey. Many analysts believe that 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 to the price levels at the end of 2004. Some economists have expressed concerns that once home sales start to slow, the big price increases of recent years could turn into sharp declines in a similar pattern to how the speculative bubble in stocks burst in 2000. But new Fed Chairman Ben Bernanke has said the most likely outcome is for a slowing in housing activity rather than a severe crash. Despite the fall in sales, the median price of a new home was up in January to $238,100, compared with $229,000 in December.

Source: Associated Press