The first sign housing in 2006 may lose its luster after five record years, new-home sales in the U.S. fell to the lowest level in a year in January and the number of properties on the market was the most ever.
The number of homes for sale rose to 528,000 in January, the most ever, from December's 515,000. Sales declined a greater-than-expected 5 percent to an annual rate of 1.233 million from a revised 1.298 million in December, the Commerce Department said today in Washington.
An improving outlook for jobs and incomes will keep sales from falling too far, economists said. Rising mortgage rates and high home prices will push down sales this year and may contribute to a slowing of the economy in the second half.
The housing slowdown ``will probably subtract anywhere from half a percent to three-quarters of a percent'' from economic growth. ``As the year progress we will continue to see a chipping away of housing,'' Anthony Chan, chief economist at JPMorgan Chase & Co.'s private client services group in Columbus, Ohio, said before the report.
Estimates ranged from 1.19 million to 1.35 million. Economists expected sales to fall to an annual rate of 1.265 million, the median of 56 forecasts in a Bloomberg News survey, from December's originally reported 1.269 million.
SUPPLY, there were enough new homes on the market to satisfy demand for the next 5.2 months, the most since November 1996, that is at the current sales pace.
A larger supply of available homes and less demand may help hold down prices this year, builders including Toll Brothers Inc., the largest U.S. builder of luxury homes, say orders are declining. They may offer homes with fewer extras to keep prices down and trim inventories, which are at the highest level in nine years, economists said.
Chan said ``You're seeing inventories creeping up and affordability pinching more and more, and you're seeing long-term rates creeping up,'' and added ``All that suggests a trimming of housing activity.''
Existing home prices will increase 5 percent after jumping 12.7 percent last year, the most since 1979. The Realtors probably will report tomorrow that existing home sales last month held at the lowest level since March 2004. Prices for new homes will rise 5.7 percent this year after climbing 7.4 percent in 2005, the National Association of Realtors forecast on Feb. 7.
ECONOMIC GROWTH, sales of new and existing homes will fall to a combined 7.91 million this year, the third highest on record, according to the Realtors, resales make up 85 percent of the housing market and are counted when the sale is closed, while new homes account for the rest and are recorded when a contract is signed.
The central bank increased its main interest rate for the 14th time at that meeting, to 4.5 percent, and said more increases ``may be needed'' to keep inflation under control. The slowdown in the housing market may weigh on economic growth in the second half of the year, Federal Reserve policy makers said in the minutes of their Jan. 31 meeting, released earlier this month, the economy probably will grow at a 4 percent annual rate this quarter.
Slowing to 3 percent by the last three months of the year, according to a Bloomberg survey from Jan. 31 to Feb. 8. Economists, including those at Lehman Brothers Inc., have raised their first- quarter forecasts since the poll was taken as record warm weather increased housing starts and retail salesm,
AFFORDABILITY, According to the Realtors, Housing affordability fell to the lowest level in more than 14 years last quarter and may decline further in 2006 as mortgage rates and prices continue to rise.
According to Freddie Mac, the second-largest mortgage buyer. Rates continued rising in February and reached 6.26 percent last week, the average rate on a 30-year fixed mortgage rose to 6.15 percent in January from 5.71 percent a year earlier.
``Speculative demand has ceased and speculators are now putting their homes back on the market,'' Robert Toll, the company's chairman and chief executive officer, said in a statement. ``The result has been more supply than demand in some regions'' including metropolitan Washington. Toll Brothers said this month first-quarter orders plunged 29 percent from a year earlier and sales for the year would rise as little as 4.9 percent.
By: Dijon Wainwright