Surprise 11% drop in Nov new home purchases

Source : Business Times – 24 Dec 2009

However, personal incomes and spending post solid gains in Nov

Purchases of new homes in the US unexpectedly fell last month, indicating a recovery from the worst housing slump since the Great Depression will be slow to develop.

However, at the same time personal incomes rose in November at the fastest pace in six months while spending posted a second straight increase.

The Commerce Department yesterday said that personal incomes were up 0.4 per cent in November, helped by a US$16.1 billion increase in wages and salaries, reflecting the drop in unemployment that occurred last month.

Purchases of homes dropped 11 per cent to an annual pace of 355,000, lower than the lowest estimate of economists surveyed by Bloomberg News. The median sales price decreased 1.9 per cent from November 2008.

Last month’s decrease signals a sustained housing recovery may be difficult to secure without additional assistance from policy makers.

‘The tax credit put a Band-Aid over the housing problem and in October and November we ripped it off’ as it was set to expire, said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina, who projected sales would fall.

‘Demand for housing is not likely to pick up on a consistent basis until we start to see some improvement in employment,’ he said.

Sales were projected to climb to a 438,000 annual pace from an originally reported 430,000 rate in October, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 400,000 to 460,000.

Consumer spending increased in November less than anticipated as Americans cut back on services after buying more autos and electronics, others figures from the Commerce Department also showed. The 0.5 per cent increase in purchases was the sixth gain in the past seven months and followed a 0.6 per cent increase in October.

The report also showed incomes climbed 0.4 per cent, the biggest increase since May, and inflation cooled.

Fewer job losses and discounts may be brightening consumers’ moods. A measure of household confidence increased in December for the first time in three months, another report showed.

The Reuters/University of Michigan final index of consumer sentiment climbed to 72.5, less than anticipated, from 67.4 in November. The figure was lower than the preliminary 73.4 reading, reported on Dec 11.

The report from the Commerce Department showed the median price of a new home in the US decreased to US$217,400, from US$221,600 a year earlier.

Sales of new homes were down 9 per cent from November 2008.

Construction cutbacks helped bring inventories down. The number of homes for sale fell to a seasonally adjusted 235,000, the fewest since April 1971. The supply of homes at the current sales rate increased to 7.9 months’ worth.

New home purchases, while accounting for less than 10 per cent of the housing market, are considered a timely indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Sales of existing homes in November rose 7.4 percent to a 6.54 million annual rate, the highest level in almost three years, the National Association of Realtors said yesterday. Foreclosures accounted for 33 per cent of all sales, while 51 per cent were to first-time buyers, NAR said.