Existing home sales drag housing down

Joan Gunin, Don Hogsett, November 5, 2001

The nation's housing market came screeching to a halt in September as American consumers were apparently dealt a body blow by a one-two combination punch of terrorist attacks and rising unemployment.

With antsy consumers coping with daily bouts of bad news, notably on the economic and jobs front, sales of existing homes — by far the largest segment of the broad U.S. housing market — tumbled by 11.7 percent, to a seasonally adjusted annual rate of 4.9 million houses sold, down from 5.5 million the month before, the National Association of Realtors (NAR) reported.

New home sales, a highly volatile number given to much revision, shrank by 1.4 percent, to a seasonally adjusted 864,000 from 876,000 in August, the U.S. Census Bureau reported.

The only flicker of hope came out of housing starts, which edged up by 1.7 percent, to a seasonally adjusted annual rate of 1.6 million on the strength of new apartment construction. Starts of single-family homes remained anemic and virtually flat, up a mingy 0.6 percent, to an annual rate of 1.3 million.

The slowdown, particularly in sales of existing homes, was not entirely unexpected, but was considerably exacerbated by terrorist attacks that brought the nation to a standstill in September. "Considering the nation essentially came to a halt during the week of the attack, we knew there would be a hit on home sales activity," said David Lereah, NAR chief economist. In fact, Lereah and the nation's realtors had been predicting a slowdown during the second half of the year after a ferocious pace of home buying that reached record levels during the first six months of this year.

But the market was quick to stage at least a partial recovery, Lereah added. "Our in-house tracking of major brokers across the country shows sales activity making some recovery, which demonstrates that the underlying demand and fundamentals of the market remain strong," he said. The NAR, he said, is still forecasting an increase in existing home sales of 1.9 percent for all of this year, to an annual rate of 5.2 million units, which would make this the second strongest year on record.

"The housing numbers for September were better than expected, although some rebound in multi-family starts seemed inevitable," said Bruce Smith, president of the National Association of Home Builders (NAHB). "But it's important to note that permits for new construction, which can be an indicator of future activity, decreased by 3 percent, including a 4 percent setback for single-family units."

Scoping out the big picture, Smith said, "It appears that the housing market was flat in the third quarter following a strong first half. We expect about a 10 percent decline in housing activity in the fourth quarter before the market rebounds early next year."

Reflecting the events of Sept. 11 and continued unease about the employment outlook, the NAHB's monthly Housing Market Index dropped eight points in the early October survey — to 48 from 56 — the largest single monthly drop since the index was first calculated in 1985.

Nonetheless, Smith said he's confident the housing market will stabilize in the first part of next year. "Compared to other sectors of the economy, housing is holding up relatively well in the face of unprecedented conditions."

Housing by region
Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast -14.5 -7.2 -26.6
Midwest -9.2 -0.3 21.2
South -11.5 -3.0 -1.4
West -12.2 -3.4 -8.2

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