November A Drag for U.S. Housing Market

Washington — Weakened by rising mortgage interest rates, and further hampered by wet weather across parts of the country, the broad U.S. housing market softened substantially during November, with housing starts and sales of costly new homes both sliding down at a double-digit pace, and only sales of less expensive existing homes managing to eke out a slender gain.

Hardest hit by far was the most forward-looking indicator, housing starts, which skidded down 13.1 percent from October levels to a seasonally adjusted level of 1.77 million units, the Commerce Department reported. Starts were down even further, by 13.8 percent from a year-before level of 2.05 million units. At 1.77 million units, starts were at their lowest level of the past 13 months. Sliding down as well were building permits, which slipped by 1.5 percent from October levels.

“Unusually wet weather” hurt housing starts, said David Seiders, chief economist of the National Association of Home Builders. But wary home builders, with a nervous eye on the Fed's interest rate tightening, “are looking ahead with a bit of caution.”

Home builders, Seiders noted, “are having a record sales year, but the number of unsold units in inventory has been on the rise. With the Fed on the move, it makes sense for builders to control inventory at this stage of the cycle.”

Taking a similar double-digit bruising, sales of expensive new homes tumbled 12 percent — their steepest slide in more than a decade — to a seasonally adjusted level of 1.1 million units. Even so, new home sales were up 3.6 percent from their year-ago level of November 2003, the Commerce Department said.

The only key housing indicator which managed a gain was existing home sales, frequently less expensive 'starter' homes, which rose a moderate 2.1 percent increase, to a record-high annualized level of 6.94 million units, the National Association of Realtors (NAR) reported. Setting a new record, resales hit their highest level of the year, and 15.7 percent above a January 2004 level of 6 million units.

David Lereah, NAR chief economist, said the credit goes to low interest rates. “Mortgage interest rates dropped a quarter of a percentage point in late summer and then stabilized. Coupled with a growing labor market and a rising economy, this created optimal conditions for the housing market.”

Going forward, Lereah expects the big market for existing home sales to cool moderately from this year's torrid levels. “Our forecast for the housing market is for a continuation of strong sales, although down a little from the record-setting pace of 2004. We think slower sales will help to create a better balance between home buyers and sellers, but with tight inventories of homes available for sale, price appreciation hasn't slowed yet.”