staff and news service reports
updated 2/28/2005 4:25:58 PM ET 2005-02-28T21:25:58

Sales of new homes fell sharply in January to the slowest pace since July, the government said Monday, although analysts and industry executives said wicked winter weather was largely to blame for the weak showing.

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New-home sales dipped to a seasonally adjusted annual rate of 1.11 million units in January, with every region of the country except the West showing weakness, the Commerce Department reported. Sales were down 40 percent in the Midwest and 17 percent in the Northeast. Both regions were socked by record-breaking storms during the month.

The median price of a new home fell 13.2 percent to $199,400, the lowest level since December 2003.

Analysts sought to minimize the significance of both declines, saying they were heavily influenced by bad weather in many parts of the country last month rather than by any fundamental weakness in the red-hot housing market. They said housing, the standout performer of the current recovery, should remain on solid footing this year unless mortgage rates rise more than expected.

"Before we go off asking the question, 'Is this the end of the housing market?,' let’s wait until the February data are in," said independent economist Joel Naroff in a note.

In a second Commerce report personal incomes, which had been bolstered by a large stock dividend payment in December, fell 2.3 percent in January. That was the sharpest decline in more than a decade after a record 3.7 percent jump in December.

The government said both months were skewed by a $3 per share dividend payment that computer software giant Microsoft made Dec. 2. Without the huge $32 billion dividend payment by Microsoft, personal incomes would have shown steadier gains of 0.6 percent in December and 0.5 percent in January.

(MSNBC is a joint venture of Microsoft and NBC.)

Personal spending was unchanged in January after having risen 0.8 percent in December. This reflected the fact that demand for autos sagged last month as dealers removed attractive incentive offers they had used to spur end-of-the-year sales.

Consumer prices outside food and energy rose by 0.3 percent in January, the biggest one-month jump in more than three years.

Stocks were lower on Wall Street as investors expressed new inflation concerns, reflecting the price jump in consumer goods and a further increase in oil prices. The Dow Jones industrial average fell 75 points on the day.

Economists believe consumer spending, which accounts for two-thirds of economic activity, will remain strong this year but at a slightly slower pace than last year. That would reflect an expected steady rise in interest rates as the Federal Reserve keeps pushing rates higher to make sure the economic expansion, now in its fourth year, does not generate unwanted inflation.

Analysts look for mortgage rates to gradually rise as well, to around 6.5 percent for the 30-year mortgage by the end of the year. After falling for six straight weeks, the 30-year mortgage has risen for the past two weeks and now stands at 5.69 percent, according to Freddie Mac.

Last week, the National Association of Realtors reported that sales of existing homes and condominiums also fell in January, dipping a slight 0.1 percent to a seasonally adjusted annual rate of 6.8 million units. Sales of both new and existing homes set all-time highs in 2004 for the fourth consecutive year.

David Seiders, chief economist for the National Association of Home Builders, said he believed sales of new homes would probably dip by about 3.5 percent this year but still remain at the second highest level on record.

“There will be moderate increases in interest rates, but they will be accompanied by continued improvements in the job market and increases in household income,” Seiders said.

The report on new home sales showed weakness in every part of the country except the West, where sales rose by 5.6 percent to an annual rate of 338,000 units.

The Census bureau, which compiles new-home sales figures, revised figures for the final three months of 2004, adding substantially to the year's record total, now put at 1.2 million.

While fourth-quarter sales remained very strong, January’s decline, combined with continued strength in homebuilding is pushing up inventories, according to, a consulting company. The industry is holding about 4.7 months' worth of inventory, according to the firm.

That is the highest level since early 2000, but still relatively low by the standards of the past two decades.

The Associated Press contributed to this story.

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