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Nov. chill fails to cool '04 outlook

The housing market appears to be easing as 2003 comes to a close. Sales of both existing and new homes declined in the month, although housing starts rose to an annual rate of almost 2 million units.

Existing home sales fell 4.9 percent in October but the index maintained its travels through historical heights, finishing the month at 6.35 million units at a seasonally adjusted annualized rate. New home sales maintained its trek over the 1 million-unit mark but declined 3.5 percent from September, at 1.105 million units on the same basis.

The one housing indicator that gained acceleration in October was housing starts, which climbed 2.9 percent above its September level to 1.96 million units on a seasonally adjusted annualized basis. Whatever shape the current sales market is in, builders seem to feel that the market will be strong down the road; building permits also rose 5.2 percent in October, to a seasonally adjusted annualized rate of 1.973 million units.

Both of the housing industry's key trade groups, the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR), noted that the indicators remain near record levels, even if there was some slippage.

"New home sales are continuing well in excess of last year's previous record pace," noted Kent Conine, president of NAHB. "While we experienced a slight slowdown last month, financing conditions remain extremely favorable across all segments of the market."

A slowdown in October was inevitable, said NAHB chief economist David Seiders, given the "frenetic pace" of home sales in the third quarter. "We're projecting 1.08 million new home sales for the year as a whole, up nearly 11 percent from 2002."

Regarding resales, NAR chief economist David Lereah observed that the last four months are the only ones on record when the existing home sales pace exceeded the 6 million mark. That may ease gradually, but should remain at historical high levels over the next year, he added.

Walt McDonald, NAR's president, believes builders are justified in foreseeing a strong construction market down the road. "Although the supply of homes on the market saw some improvement at the end of October, inventories are still quite lean," McDonald said.

Other signs point to added demand down the road. Noting the strong rise in both The Conference Board's consumer confidence index and the consumer sentiment index from the University of Michigan, economist Patrick Fearon of A.G. Edwards said, "Signs suggest the consumer sector could keep growing in the fourth quarter. Consumers may also keep spending if they start feeling more secure in their jobs."

NAHB believes that the starts engine may keep running at a high pace for some time. "Starts and permits have been running at an elevated pace since the summer," said Seiders, "and fundamentals suggest that this strong new home market should carry through into 2004."

Peter G. Glassman, senior economist at Bank One, described the current starts pace as "blistering" and noted that the current rate is the highest in 18 years. "Home builders continue to build at a feverish pace, apparently with the expectation that new home sales will remain strong even nine months from now, when many of these homes will be finished," Glassman said.

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast -2.7 12.8 -3.3
Midwest -4.9 -1.3 -0.5
South -2.7 5.8 -1.0
West -9.2 6.8 -9.4


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