WASHINGTON, D.C. - Sales of new homes plunged in November by the largest amount in nearly 12 years, the most dramatic evidence yet that the booming housing market is starting to cool off.
The Commerce Department reported Friday that sales of new single-family homes fell by 11.3 percent last month to a seasonally adjusted annual rate of 1.245 million units.
Analysts had been expecting a drop of around 8.7 percent given that sales in October had jumped unexpectedly to an all-time high. But many said the size of the decline was a clear indication that the five-year boom in housing has peaked.
Median price dropped
In addition to the big plunge in sales, the median price of a new home dropped by 4.1 percent from the October level to $225,200. That was up only 0.3 percent from November 2004, representing a marked slowdown from what had been double-digit price gains.
Analysts said they still expect sales of both new and existing homes to set records for a fifth consecutive year in 2005, but they are forecasting sales declines of around 6 percent in 2006 as demand falters under the impact of rising mortgage rates.
The Federal Reserve pushed interest rates up for a 13th time this month with two more rate hikes expected in January and March as the central bank tries to slow the economy to keep inflation under control.
The fear is that the Fed's credit tightening could cause a steep falloff in housing demand that would send home prices plunging and send a shock through the economy similar to the 2000 bursting of the stock market bubble.
Most analysts said this remained a remote possibility in housing.
"There are plenty of bubbles around the country that are losing air rapidly and more are likely to follow. But so far there is no generalized collapse in the market," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.
Home sales were down in all parts of the country except the Northeast, where they staged a 13.4 percent surge, the biggest percentage increase in this region since January 1994.
Sales were down 22.1 percent in the West, the biggest decline since February 1994, while sales fell 18.3 percent in the Midwest and 5.5 percent in the South.
The stockpile of unsold homes rose to a record of 503,000 homes in November.
This rising inventory is one reason economists believe price gains will be less in coming months.
Demand is also being hurt by falling affordability, reflecting the gains in home prices in recent years and rising mortgage rates. The National Association of Realtors said this week that its affordability index is at its lowest level in 14 years.
While rates on 30-year mortgages dipped slightly to 6.26 percent this week, they are still a full percentage point above the four-decade low of 5.21 percent set in mid-2003.
Builders are apparently rushing to complete homes and sell them before mortgage rates rise further. The government reported earlier this week that construction was started on 5.3 percent more homes and apartments in November than in October.
On the Net
New home sales: http://www.census.gov/newhomesales
Durable goods orders: http://www.census.gov/m3