Tuesday, February 28, 2006

Housing under pressure: US New and World report

That housing bubble has definitely sprung a leak.

Sales of existing homes fell 2.8 percent in January to a seasonally adjusted annual rate of 6.56 million new units. Existing condominium and co-op sales were even worse, falling 10.6 percent last month.

"In the wake of interest rates peaking in November, I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity,". "Existing-home sales should stay below the record levels experienced over the last two years, but they'll maintain a historically high pace."

Today's bad news comes on the heels of a separate report issued Monday by the Commerce Department that showed that sales of newly constructed homes also fell in January – by 5 percent.

There's a good chance that the housing market will remain under pressure in the coming months. That's because as demand for new and existing homes wanes, the supply of residential real estate is growing.

The Commerce Department, for example, reported yesterday that supply of newly constructed homes on the market had grown to 5.2 months' worth. This marks the first time in nearly a decade that new-home supply crossed the five-month level.

As for the stockpile of existing homes, it's up, too. The Realtors association reported a 5.3 months' supply of existing homes currently on the market. That's up from just 3.7 months in January 2005.

Should supply continue to grow faster than demand, it's likely that housing prices will continue to drop. Existing-home prices were flat in January but are down more than 4 percent from their peak last August. And while the median price of a new home sold in January rose from $229,000 to $238,100, that's still off the October average of $243,900.


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