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December new home sales jump 13%

WASHINGTON -Real estate's two major sales indicators headed in opposite directions as the calendar year for housing ended.

Sales of new homes picked up a phenomenal 13.4 percent in December, to 975,000 units on a seasonally adjusted annualized basis, according to the U.S. Department of Commerce. Existing home sales, meanwhile, dropped 8 percent, to 4,870,000 units on the same basis, according to figures from the National Association of Realtors (NAR).

New home sales gained strong velocity as the year came to a close, thanks to the continued decline in mortgage rates. According to the Federal Home Loan Association, the average rate for a 30-year, fixed-rate adjustable mortgage was 7.38 percent, down from 7.75 percent in November-a considerable, 370-basis point decline.

Michael Niemira, vp of the Bank of Tokyo-Mitsubishi Ltd., observed that softening in both mortgage rates and median house prices (off 9.8 percent in December) helped spur the new-home business. Niemira did cast doubt on the Commerce Department's figures, however; his remark in noting the West region's 38 percent splurge in new home sales was, "Can this be?"

Niemira also observed the considerable revision in the November new home sales figure, which Commerce dropped from its originally reported 909,000 to 860,000. "With mortgage rates receding, sales have remained relatively high, but probably not as high as these data portray," he said.

Regarding resales, NAR chief economist David Lereah noted that unusual weather helped hold this figure down for the last month of the year. "Although existing home sale rates are adjusted for seasonable factors, abnormal cold and harsh winter storms hit sales in every region of the country," said Lereah.

Noting that resales account for 85 percent of all houses on the market, Sam Bullard, economic research analyst for First Union Economics Group, commented, "This drop in existing home sales reinforces the picture of a slowing economy."

Both NAR and Bullard also observed that, even with the December drop, the year 2000 proved to be the second highest on record for resales. The final total was 5,030,000 units.

In the face of the sales reports, housing starts remained on an even keel in December. The Commerce Department reported a starts total of 1,575,000 units on a seasonally adjusted annualized basis for December, up 0.3 percent from November.

On the surface, the fact that single-family starts-by far the largest component of the overall starts equation-rose 6 percent in December boded well for the overall housing market. However, First Union's Bullard warned that other indicators brought omens of a much softer construction picture during 2001.

"The slower pace of job growth and the lack of new stock market wealth will contain starts in 2001," he predicted. "Although mortgage rates have fallen 150 basis points since peaking last May, declining consumer confidence and declining equity markets have offset much of the boost to the housing sector from lower borrowing costs."

Bullard made these comments one week before The Conference Board announced a more-than-14-point drop in its consumer confidence index for January. The picture for housing, at least for the early part of 2001, will be clouded as both consumer confidence and mortgage rates head south.

Housing by region / Month-to-month percent change


Existing home sales Housing starts New home sales

Northeast

-10.6

8.9

8.1

Midwest

-14.5

-21.1

22.1

South

-6.6

5.2

-0.7

West

-2.1

5.8

38.0


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