Housing sales improve in November

Don Hogsett, January 7, 2002

Bolstered by warmer weather, improving consumer sentiment and historically low interest rates, the nation's housing picture improved across the board in November, surpassing estimates and providing a ray of hope in an otherwise soft economy.

The housing market has remained sturdy and resilient, even after September's terrorist attacks, but unseasonably warm weather spurred surprisingly strong new home sales and housing starts.

Home builders broke ground for new homes and apartments at a seasonally adjusted annual rate of 1.6 million units, up 8.2 percent from 1.5 million the prior month, the Commerce Department reported.

At the same time, the National Association of Home Builders reported in a monthly canvass that home builders' optimism rebounded strongly during December, with the monthly index shooting up to a reading of 57 from a level of 49 in November, the biggest one-month jump recorded since February 1998.

Starts of single-family homes were bumped up by 3.2 percent in November, to a seasonally adjusted annual level of 1.3 million units from 1.2 million units in October. By far the biggest movement came from the apartment sector, housing with five or more units, where starts rocketed up by 30.1 percent, to 346,000 units from 266,000 the prior year.

Starts were strongest in the Northeast and Midwest, up 20.1 percent and 20.5 percent, respectively. But housing starts declined modestly in the South, down 1.6 percent, and dipped by 5.0 percent in the West.

Sales of existing homes, by far the largest segment of the U.S. housing market, advanced by 0.6 percent, to a seasonally adjusted rate of 5.21 million units, up from 5.18 million units the previous month. Even so, sales of existing homes remained 1.7 percent beneath the 5.30-million-unit pace of a year ago.

"Despite the recession, all the major factors necessary for a strong housing market — low interest rates, strong household formation and relatively low unemployment — are continuing to create favorable market conditions," said David Lereah, chief economist of the National Association of Realtors (NAR).

The strong housing market should continue through the first half of 2002 but could be pressured later in the year by rising interest rates as the economy rebounds from the current recession, said NAR President Martin Edwards Jr. "With low interest rates and more homes coming on the market, we have an excellent window of opportunity for the first part of the new year — especially for first-time buyers. However, with the economy projected to improve during 2002, fixed mortgage rates will tick up to the 7.2 percent range by the second half of the year, which would place some pressure on lower-income borrowers."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional fixed-rate mortgage was 6.66 percent in November, up slightly from a record low of 6.62 percent in October. A year ago, in November 2000, the same interest rate was 7.75 percent.

The highly volatile gauge of home sales, subject to frequent upward or downward revision, climbed higher by 6.4 percent, rising to a seasonally adjusted level of 934,000 units, up from a revised number of 878,000 in October, the Census Bureau reported. Sales were strongest in the Midwest, jumping up by 13.1 percent, followed by gains of 7.7 percent in the South and 6.1 percent in the Northeast. Only the West posted a modest decline in new home sales, down 0.9 percent.

Housing by region
Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast 4.9 20.1 6.1
Midwest -1.3 20.5 13.1
South 3.3 -1.6 7.7
West -2.0 -5.0 -0.9

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