Housing market softens in December

Heath E. Combs, Don Hogsett, February 4, 2002

The U.S. housing market softened virtually across the board during December, registering declines in existing home sales and housing starts, with only sales of new homes managing to eke out a gain — and even then only because of a sharp spike in West Coast sales.

After big gains in November, fueled by warmer weather as well as continued low mortgage rates, the broad housing market fell back to earth in December, giving up much of the prior month's gains.

But even with the December declines, the housing market remained resilient, even after September's terrorist attacks, and remained broadly ahead of year-ago levels.

By far the biggest piece of the U.S. housing market, existing home sales slipped by 0.8 percent from November, to a seasonally adjusted level of 5.19 million units, wiping out the 0.6 percent increase recorded the prior month. But even so, existing home sales for all of 2001 advanced by 2.7 percent, to a seasonally adjusted level of 5.11 million units, setting a new record.

David Lereah, chief economist for the National Association of Realtors, cited low mortgage rates for the strength in the housing market despite overall weakness in the broader U.S. economy. "Although mortgage interest rates moved around a lot during 2001, they generally stayed within a range of half of a percentage point. In fact, last year was the second lowest year on record since Freddie Mac started tracking mortgage rates in 1971, and that is one of the fundamental factors in the favorable market conditions that we expect to prevail for this year as well."

Housing starts tumbled even further than resales during December, falling off by 3.4 percent, to a seasonally adjusted level of 1.57 million units, the Commerce Department reported, losing ground after November's big 8.2 percent jump. But all of December's decline came out of the market for multi-family housing, and starts of single-family homes improved by 3.6 percent, to a seasonally adjusted reading of 1.25 million units.

On a more positive note, however, building permits, a key indicator of home builders' expectations for the future, climbed by 3.6 percent in December, to a seasonally adjusted rate of 1.65 million units.

The highly volatile market for new home sales, subject to frequent and substantial monthly revisions, was the only piece of the market to record a gain in December, advancing by 5.7 percent. But substantially skewing that number was a huge 35.1 percent increase in West Coast states, to a seasonal average of 281,000 from 208,000 last year. All the other regions of the nation posted declines, led by a 9.6 percent drop in the Midwest, followed by smaller declines in the South, down 1.1 percent, and the Northeast, off 0.1 percent.

Indeed, virtually the entire American housing market was propped up by solid gains in Western states during December. In housing starts as well as new home sales, gains were recorded only on the West Coast, while the Northeast, Midwest and Southern states all posted declines. In the big market for existing home sales, only the West Coast and Midwest reported increases, while resales fell in the Northeast and the South.

Housing by region
Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast -1.6 -15.8 -0.1
Midwest 0.9 -10.9 -9.6
South -2.4 -2.6 -1.1
West 0.7 8.3 35.1

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