Sales of Houses Fall in October

NEWS ARTICLE- WASHINGTON - Sales of existing homes fell a bigger-than-expected 2.7 percent in October, a fresh sign that the red-hot housing market is cooling. The decline would have been worse without increased demand from displaced hurricane victims.

Though prices rose at the fastest clip in more than a quarter-century, the number of unsold homes rose to the highest level in 19 years. Analysts forecast that this backlog will dampen future price gains.

The National Association of Realtors reported Monday that sales of existing homes and condominiums fell by 2.7 percent in October, more than double the 1.1 percent decline analysts expected.

It left sales at a seasonally adjusted annual rate of 7.09 million, down from a sales rate of 7.29 million units in September, which was the second-fastest pace on record.

Economists said the latest report, which showed sales declines in all regions of the country, appeared to be a signal that the booming housing market was beginning to slow under the impact of steadily rising mortgage rates.

"The housing sector has likely passed its peak. The boom is winding down," said David Lereah, chief economist for the Realtors. "I expect continued softening in housing if rates remain at these levels or go higher."On Wall Street, stocks fell moderately as mixed news on holiday shopping prompted investors to take a pause from the recent five-week rally. The Dow Jones industrial average lost 40.90 points to close at 10,890.72.

The decline in sales pushed the number of unsold homes to 2.87 million, the highest level in more than 19 years. It would take 4.9 months to deplete that inventory level at the current sales pace.

The median, or midpoint, price of an existing home sold last month rose by 16.6 percent to $218,000, compared with October 2004.

Economists predicted the buildup in unsold homes would help dampen the surge in home prices that saw 69 cities report double-digit gains in prices this summer, compared with the third quarter of 2004.The sales slowdown was linked to the Federal Reserve''s continued campaign to boost interest rates to combat the threat of higher inflation after the recent surge in energy prices.

The average commitment rate for 30-year mortgages rose to 6.07 percent in October, up from 5.77 percent in September.

Patrick Newport, an economist with Global Insight, a forecasting firm in Lexington, Mass., said he expected rates, which are up by about a half-point in the past 10 weeks, to rise by another half-point in the next six months as the Fed keeps boosting short-term interest rates.
"These increases will cool off the housing market and deflate many local housing bubbles without creating a housing crash," he predicted.

Most analysts believe housing will cool gradually to more sustainable levels but will escape the adverse consequences that occurred when the Internet stock bubble burst in early 2000, wiping out trillions of dollars in paper wealth and helping to push the economy into a recession.

Lereah said he believes gains in home prices would slow to around 5 percent nationally in 2006.He forecast that sales of existing homes would decline by 3.5 percent to 6.86 million units next year, but he said 2005 should finish with 7.11 million sales, setting a record for the fifth straight year.

The weakness in existing home sales in October followed an earlier report that construction of new homes and apartments fell by 5.6 percent last month, the biggest setback in seven months. Applications for new building permits, a good sign of future activity, fell by 6.7 percent, the biggest decline in six years.

The 2.7 percent drop in sales of existing homes would have been a larger 3.2 percent decline without a boost in activity from people relocating after hurricanes Katrina and Rita devastated the Gulf Coast.Sales surged by 83 percent in Baton Rouge, La.; 32 percent in Mobile, Ala., and 14 percent in Houston. This more than offset sales declines of 42 percent in New Orleans and 44 percent in Beaumont, Texas.

The 16.6 percent increase in the median sales price was the biggest year-over-year price increase since a 17.2 percent jump in July 1979. The backlog of 2.87 million unsold homes was the highest since April 1986.

By region of the country, October's biggest sales decline occurred in the Northeast, a drop of 7.4 percent. Sales were down 1.9 percent in the Midwest and 1.2 percent in the West. Sales were down 1.8 percent in the South despite the big gains in areas where displaced homeowners relocated.



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