Video: Coldwell Banker boss on real estate market

updated 12/27/2006 6:46:26 PM ET 2006-12-27T23:46:26

Sales of new homes bounced back in November and have now posted increases in three of the past four months, a hopeful sign that this year’s severe drop in housing may finally be coming to an end.

The Commerce Department reported Wednesday that sales of new single-family home rose 3.4 percent last month to a seasonally adjusted annual rate of 1.047 million units.

That was better than the 1.1 percent gain economists had been expecting and the government also revised the previous three months to show stronger activity.

“It looks like sales activity has truly bottomed out,” said David Seiders, chief economist for the National Association of Home Builders.

Housing, which had been one of the economy’s standout performers, has been battered this year as interest rates were rising in the spring and potential buyers began to balk at paying prices which had surged to record levels, reflecting five boom years for sales.

The median price of a new home sold last month rose to $251,700, up 3.2 percent from the October level and 5.8 percent higher than a year ago.

However, analysts said the price increase was due primarily to the fact that sales increased in high-priced regions of the country such as the Northeast and West while falling in the South, where home prices are generally lower.

They predicted further price declines in the months ahead because the inventory of unsold homes, despite recent declines, remains at elevated levels. The median price, the midpoint for homes sold in a given month, peaked at a record of $257,000 in April.

On Wall Street, the Dow Jones industrial average soared to another record close, reflecting heavy demand by year-end bargain hunters. The Dow rose 102.94 points to close at an all-time high of 12,510.57.

The housing slowdown has had a major impact on the overall economy, shaving 1.2 percentage points from growth in the July-September period and probably an equal amount from growth in the current quarter.

The overall economy expanded at an anemic annual rate of just 2 percent in the third quarter with growth in the final three months of the year expected to come in only slightly better than that.

There had been fears that the bursting of the real estate bubble might have a similar effect as the bursting of the stock market bubble did in 2001, restraining consumer spending so much that it could push the country into a full-blown recession.

However, analysts now expect the economy will avoid an outright downturn although they said the weakness from housing was likely to depress overall growth probably through the first half of next year.

“The U.S. economy is still far from breaking free of the shackles of the housing recession despite this bit of holiday cheer,” said Michael Gregory, senior economist at BMO Capital Markets.

Seiders said he expected new home sales, which had set records for five years, to fall by 18 percent this year to around 1.05 million units from last year’s all-time high of 1.28 million units.

He said he looked for sales to stabilize at that level in 2007 as builders continue to work down a huge backlog of unsold homes by offering a range of incentives from kitchen upgrades to free landscaping.

“We are also seeing a lot of builders paying part of the closing costs,” Seiders said.

The number of unsold homes fell by 1.4 percent in November to 545,000. It was the fourth straight decline in inventories after they had hit an all-time high of 573,000 units in July.

It would take 6.3 months to exhaust the current supply of homes at the November sales pace, down from 6.7 months in October and 7.2 months in July.

Sales last month fell 9.3 percent in the South but were up in the rest of the country. Sales rose 22.5 percent in the Northeast, a rebound from a huge 35.5 percent drop in October, while they increased 22.4 percent in the Midwest and 19 percent in the West.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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