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Housing Sales Set for Soft Landing Mode

With interest rates rising and demand showing some signs of eroding, the nation's housing market sent out mixed signals during March, telling a story that sounded like, “On the one hand … but then on the other.”

Sales of new homes, a highly volatile number subject to frequently wide swings, jumped up by 13.8% during the month, the biggest one-month jump in 13 years. But that huge jump was a rebound from a steep 10.9% drop the month before, and was driven in part by lower prices, signaling that antsy builders are starting to lower prices to generate cash flow, move empty houses and thin out the market, bringing supply into greater parity with demand.

Putting the number into perspective, even with the run-up of more than 13% over last month, sales of new homes were still down by 11.5% from July of last year, when the housing boom was at its zenith.

Elsewhere, the market was more muted, with housing starts falling by 7.8% and sales of existing homes — by far the largest segment of the market —virtually flat, edging up just 0.3%.

David Lereah, chief economist of the National Association of Realtors, said sales of existing homes are leveling off. Still, he said, with sales levels holding close to the month before, “this is additional evidence that we're experiencing a soft landing. We may see some minor slowing in home sales as interest rates rise, but the market clearly is stabilizing.”

In a further sign of calming, home prices are off their earlier torrid pace, he said. “We now see appreciation cooling to single-digit rates of price growth — another sign that the market is normalizing.”

Housing By Region
Month-To-Month % Change, March 2006

EXISTING HOME SALES HOUSING STARTS NEW HOME SALES
Source: U.S. Department of Commerce and National Association of Realtors
Northeast 1.7% -0.5% 4.7%
Midwest 1.2 -8.2 10.9
South -0.7 -4.8 6.9
West -0.7 -15.5 35.7


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