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New home sales fall 10% in January

WASHINGTON -The weather was cold in January-and so were home sales, according to the monthly statistics released last week.

New home sales in January fell 10.9 percent, to 921,000 units on a seasonally adjusted annualized basis, according to figures from the U.S. Department of Commerce. Likewise, sales of existing homes migrated south during the first month of the year, declining 6.6 percent to 4,650,000 units on a seasonally adjusted annualized basis.

For the resales figure, January was the second losing month in a row. David Lereah, chief economist of the National Association of Realtors (which provides the monthly resales totals), said the onset of lower mortgage interest rates was offset by the plummet in consumer confidence.

As if to provide a chorus to Lereah's comments, The Conference Board's consumer confidence index (also released last week) hit its lowest level in nearly five years in February.

"For two consecutive months we've had big drops in existing home sales," said Lereah. "This results from a decline in consumer confidence and the deteriorating economy."

The pundits from outside the housing industry agreed. The existing home sales drop "fits into the overall evidence of pervasive weakness that economic activity has been experiencing recently," said Anthony Karydakis, senior economist for Banc One Capital Markets.

"Up to now, the housing market had been holding up surprisingly well," Karydakis continued, "but [the resales figure] raises the issue of whether the sector is feeling the pressure from the more generalized softness in the economy."

Karydakis was far less frightened over the nearly 11 percent fall in new home sales, noting that the December number had been revised sharply upward to its highest one-month rate in history.

Sam Bullard, economic research analyst with First Union Economics Group, said the resales decline caught industry analysts somewhat by surprise, despite the weak fundamentals characterizing the market.

"While the overall economy has weakened recently, the housing sector has largely remained resilient," Bullard observed. "The performance of the housing market in the coming months will be a critical determinant of whether the broad economy is able to avoid a recession."

At least one major housing indicator, housing starts, was able to avoid recessing in January. According to the Commerce Department, starts posted their third straight monthly increase, puffing up to 1,651,000 units on a seasonally adjusted annualized basis, or 5.3 percent ahead of December.

Builders, at least, were clearly optimistic as the year 2001 opened. Surveys by the National Association of Home Builders showed as much, with builders reporting that softening mortgage interest rate should help the housing sector, said NAHB President Bruce Smith. Those interest rates stand at slightly more than 7 percent for a 30-year, fixed-rate mortgage.

Economists Stan Shipley and Mary Dennis of Merrily Lynch cited mild January weather as a spur for starts. "Residential construction spending will be up in the first quarter, another reason not to expect a recession," said Dennis and Shepley.

Banc One's Karydakis said, "Although favorable weather probably helped to boost starts in January, the series had held up in December as well when the weather was unseasonably cold. Overall, residential construction remains the best-performing sector of the economy."

Housing by region / Month-to-month percent change


Existing home sales Housing starts New home sales

Northeast

-8.2

-21.3

-18.5

Midwest

-1.0

44.5

-7.0

South

-6.8

4.9

-6.3

West

-9.9

-7.0

-18.7


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