Credit Commentary

Sales of New Homes Unexpectedly Fell in November to Seven-Month Low

By Administrator on Wednesday, December 23 2009

Sales of new homes plunged by 11% unexpectedly in November to the lowest level since April, a sign the housing market recovery will be rocky and heavily dependent on the government stimulus. The slump from October's pace shows that consumers are taking their time following an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive was set to expire at the end of November, but Congress pushed back the date to April 30, 2010 and expanded the program to include current homeowners who relocate.

The results show how reliant the housing market has been on government assistance. About 2 million homebuyers have taken advantage of the tax credit of up to $8,000 for first-time buyers, the National Association of Realtors estimated this week. Another 2.4 million are expected to either tap that subsidy or another one for up to $6,500 for current homeowners.

The Federal Reserve is also snapping up $1.25 trillion in mortgage-backed securities to help keep interest rates low, which makes payments more affordable.

Despite the poor showing from new home buyers, the housing market has been recovering from the worst downturn in decades, largely due to a massive infusion of federal assistance. New home sales are up 8% from the bottom in January but 74% below the peak in July 2005. Compared with November last year, sales were off 9%.

That home prices are still falling shows one government housing program, an effort to get lenders to prevent foreclosures by lowering monthly payments for hundreds of thousands of borrowers, isn't working as well as the Obama administration would like. Only about 31,000 borrowers have completed the process so far.

In the meantime, high unemployment is causing homeowners to default on their loans in record numbers. Banks are unloading foreclosed homes, driving prices down in many areas, particularly Arizona, California, Florida and Nevada.

The nationwide median sales price of $217,400 was down nearly 2% from $221,600 a year earlier, but up about 4% from October's level of $209,400 reported by California realtor’s association. The new home sales hit a seasonally adjusted annual rate of 355,000 last month, off from a downwardly revised 400,000 pace in October. Economists had expected 440,000.

While prices for homes in many parts of the country are still falling, the tax credit clearly helped the volume of sales. However, the only strong region was the Midwest, where sales rose 21%. Sales fell by 21% in the South, 9% in the West and 3% in the Northeast.