Housing Sector Still Cooling

Don Hogsett, July 31, 2006

With the air still leaking out of the nation's housing bubble, all three segments of the broad housing market cooled off during July, with sales and housing starts all subsiding.

Sales of moderately-priced existing homes, which appeal to entry-level buyers, fell for a second straight month, slipping by 1.3% to a seasonally adjusted level of 6.6 million units. Resales, which account for more than two-thirds of all U.S. housing activity, have now fallen off by 8.9% over the past 13 months, from a recent high of 7.3 million units reached in June 2005.

David Lereah, chief economist of the National Association of Realtors, said, “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing.”

As the market comes off its highs, he noted, home prices are coming down. Sellers, he said, “have recognized that they need to be more competitive in their pricing, given the rise in housing inventories. Home prices are only a little higher than a year ago.”

At the same time, sales of more pricey new homes continued their year-long slide, falling by 3.0% to a seasonally adjusted level of 1.1 million units. Hard hit by rising mortgage rates, forcing investors and speculators out of the marketplace, new home sales are now off by 17.3% from a level of 1.4 million units last July.

With new home sales hitting a wall, the nation's home builders are taking a breather, and housing starts dropped off by 5.3% in July to a level of 1.9 million units. The hardest hit segment of the market, starts are now off by 18.3% from a recent high-water mark of 2.2 million units started in January. In a further sign of builders' jitters, they are taking out fewer permits to start work on new homes, and the number of permits issued has dropped by 4.3% in June, and by 16.9% since last September.

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