DCN ARCHIVES

March 3, 2005

January figures dip 9%

Bad weather batters sales of new homes in the U.S.

WASHINGTON

Sales of new homes fell 9.2 per cent in January in the United States while the median price of a new home skidded to the lowest level in more than a year.

Analysts blamed the worse-than-expected showing on bad weather in many parts of the country rather than any serious problems in the red hot housing market.

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 exhibiting weakness, the Commerce Department reported. The median price of a home, the point where half sold for more and half for less, fell 13.2 per cent to $199,400 (U.S.), the lowest level since December 2003.

Analysts sought to minimize the significance of both declines, however, saying they were heavily influenced by bad weather in many parts of the country last month. They said housing, the stand out performer of the current recovery, should remain on solid footing this year unless mortgage rates rise more than expected.

In a second Commerce report, personal incomes, which had been bolstered by a large stock dividend payment in December, plunged 2.3 per cent in January. That was the sharpest decline in more than a decade for personal incomes, which posted a record 3.7-per-cent jump in December.

However, the government said both months were skewed by a $3-per-share dividend payment that computer software giant Microsoft made on Dec. 2.

Without the huge $32 billion dividend payment by Microsoft, personal incomes would have shown steadier gains of 0.6 per cent in December and 0.5 per cent in January.

Personal spending was unchanged in January after having risen by 0.8 per cent 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.

A gauge of inflation tied to consumer spending showed that prices outside of food and energy rose by 0.3 per cent in January, the biggest one-month jump in more than three years.

Economists believe that 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 per cent 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 per cent, according to Freddie Mac.

Last week, the National Association of Realtors reported that sales of existing homes and condominiums had fallen as well in January, dipping a slight 0.1 per cent to a seasonally adjusted annual rate of 6.8 million units.

Both sales of 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 per cent this year but still remain at the second highest level on record.

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

The Associated Press

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