Sales of new homes in the US fell to a 12-year low in November, pointing to bigger declines in construction that will hinder economic growth there in 2008.
Purchases dropped 9 per cent to an annual pace of 647,000 and October sales were revised lower, the US commerce department said yesterday in Washington. New home sales are down 25.4 per cent so far this year, heading for the biggest annual decline since at least 1963.
"This gives a dire picture of the US housing market," said Dana Saporta, an economist at Dresdner Kleinwort. "The weakness of the housing industry does raise the risk of recession."
The deepest housing recession in 16 years will worsen as discounts fail to lure buyers and mounting foreclosures swell the glut of unsold properties, economists said.
Falling property values may cause consumer spending to cool, increasing the odds that the expansion will falter in 2008. "The most important implication of this is it's going to drive down construction outlays and that's a direct effect on GDP [ gross domestic product]," said Neal Soss, chief economist at Credit Suisse Group in New York.
Sales of new homes were down 34 per cent from the same time last year, the biggest 12-month drop since January 1991. The median price fell 0.4 per cent from November 2006 to $239,100 (€162,459). The number of homes for sale at the end of November decreased 1.8 per cent to 505,000, the fewest in two years. Still, because sales dropped even more, the inventory of unsold homes at the current sales pace jumped to 9.3 months from 8.8 months in October.
The housing recession has deepened since the turmoil in subprime mortgages led to a worldwide credit shortage. Stricter borrowing standards and a freeze on lending to borrowers with poor credit put mortgages out of reach for more potential buyers.
This is driving home prices lower, weakening sales as people hold out for even bigger reductions. Sales of new houses will probably tumble 8.9 per cent in 2008 after a 25 per cent drop this year, according to a December 13th forecast from mortgage buyer Fannie Mae.
Sales of new homes in November were 53 per cent down from their July 2005 peak. Home prices in 20 metropolitan areas fell 6.1 per cent in the 12 months to October. The decline raises the risk that more Americans will walk away from properties that are worth less than they owe, economists said.
Lehman Brothers Holdings is forecasting prices will fall at least 15 per cent from peak to trough.
With sales and prices falling, foreclosures rose 68 per cent in November from a year earlier, and they may continue to surge in 2008. And as foreclosures throw more homes on to the market, homebuilders are scaling back. - (Bloomberg)
