WASHINGTON – Defying forecasts of an imminent slowdown, sales of new homes shot up in April to the fastest sales pace this year. But prices were up only slightly, and the backlog of unsold homes hit a record.
The Commerce Department reported yesterday that sales of new, single-family homes increased by 4.9 percent last month to a seasonally adjusted annual rate of 1.198 million units, the highest rate since December.
Economists, who had been forecasting a sales decline in April, said the increase had been skewed by the fact that the government lowered sales activity significantly in prior months.
Also, they noted that the number of unsold homes remaining on the market at the end of April rose to the highest level on record, an overhang that they predicted would depress prices going forward.
The median price of a new home sold in April was $238,500, up just 0.9 percent from a year ago, far below the double-digit price gains sellers were enjoying last year at the peak of the housing boom.
“Housing is holding up better than we had thought given how much mortgage rates have gone up, but we still expect it to weaken as the year goes forward,” said David Wyss, chief economist at Standard & Poor's in New York.
Wyss said he expected home sales to drop by 10 percent this year and that construction of new homes and apartments would be down by about 8 percent.
In San Diego County, new-home sales totaled 838 in April, down 33.3 percent from a year ago, according to DataQuick Information Systems. A breakdown between single-family and multifamily units was not available.
Overall, San Diego's median home price last month was $505,000, up 4.3 percent from April 2005. The inventory of unsold existing homes was about 18,200, up about 75 percent from the previous year, according to the San Diego Association of Realtors.
The housing slowdown is coming after five years in which sales of both new and existing homes hit consecutive sales records as buyers enjoyed the lowest mortgage rates in four decades.
The National Association of Realtors is scheduled to report today on existing-home sales, which represent 80 percent of the total home market, with expectations of a 2.5 percent decline.
The Federal Reserve has been raising short-term interest rates for nearly two years, and those increases are finally starting to trigger a sustained rise in long-term borrowing costs. The rate on 30-year mortgages hit a nearly four-year high of 6.6 percent last week.
Federal Reserve Chairman Ben Bernanke said last week that he believed the housing market, which has been a key driver of the U.S. economy, was cooling but that it appeared to be a “very orderly and moderate kind of cooling.”
But some economists are worried that the slowdown could be more severe, mirroring the disruptions caused when the stock-market bubble burst in early 2000.
Peter Schiff, president of Euro Pacific Capital, a brokerage firm in Darien, Conn., said sales of new homes are coming at the expense of existing-home sales as buyers respond to aggressive incentive offers that builders are using to move unsold homes.
Once existing-home owners realize they will have to lower their asking price to make a sale, this could cause a sharp drop in sales prices around the country, Schiff said.
Many economists believe the slowdown in housing will be gradual as long as inflation pressures remain moderate enough to allow the Fed soon to take a pause in its two-year campaign to push interest rates higher.
In other economic news, orders to U.S. factories for big-ticket manufactured goods fell 4.8 percent in April, the largest amount in three months, as aircraft orders plunged by 32.2 percent and demand for computers and other electronic products dropped by the largest amount in nearly six years.
However, analysts said this decline overstated the weakness in manufacturing, which they said should still show strong gains in coming months, reflecting lean inventory levels and a drive by businesses to boost capital investments.
That strength is expected to partially cushion the economy from the adverse effects of a slowdown in housing.
