December new home sales up slightly

Victor Epstein

Monday, Jan. 31, 2005 | 9:34 a.m.

U.S. sales of new homes rose 0.1 percent last month to 1.098 million houses at an annual rate, capping the fourth consecutive record year.

The increase followed a revised 1.097 million pace in November, the Commerce Department said today in Washington. Sales in 2004 totaled 1.183 million, up 8.9 percent from 2003.

Homebuying may slow this year as mortgage rates increase. But job gains will probably limit the amount of the decline, economists said.

"We're finally starting to see some signs of moderation in housing, which we as economists have been looking for," Stephen Gallagher, chief U.S. economist at Societe Generale in New York, said. "It still looks like a healthy housing market going forward, but the string of consecutive records may finally be over."

The median forecast in a survey of 59 economists before today's report called for sales to rise to 1.2 million from a previously reported 1.125 million in November. Estimates ranged from 1.086 million to 1.310 million.

Combined sales of new and existing homes totaled a record 7.86 million.

Sales of new homes rose in two regions. They increased 56 percent in the Midwest to 241,000 houses at an annual rate, erasing the 37 percent decline in the prior month. Sales rose 6.3 percent in the West to 320,000. Sales declined 16 percent in the South to 467,000 and 16 percent in the Northeast to 70,000.

The median price rose to $222,000 in December after falling to $219,000 the month before.

The number of new homes for sale rose to 432,000 last month, the most since August 1973, from 421,000 in November. The median number of months those homes have been for sale increased to 4.2 in December from 4.1.

In the Las Vegas Valley, Home Builders Research Inc. counted 3,203 new home sales in December, bringing the valley's total new home closings to 29,248 for the year, an increase of 16 percent over 2003. The median price of a new home in December valleywide was $290,287, a year-to-year increase of $80,676, or 38.5 percent.

Measured against sales, the U.S. supply of new houses rose to 4.8 months' worth in December, the highest since June 2000, from 4.7 in November.

Centex Corp. and KB Home, both big players in the Las Vegas market, are among builders that say they will be working this year to complete previous orders.

"We see 2005 as being every bit as good as 2004, if not better," said Timothy Eller, chief executive of Dallas-based Centex, the fourth-largest builder by stock value. "It's a great time to be a homebuilder."

The backlog of ordered homes was up almost 20 percent in January from a year earlier and represents five to six months of production as well as revenue of $5.5 billion, Eller said.

The backlog at KB Home has increased 57 percent and represents revenue of $4.8 billion, according to Domenico Cecere, the Los Angeles-based company's chief financial officer. KB Home is the seventh-largest U.S. homebuilder.

"We're going into 2005 smoking," Cecere said.

Even so, sales are likely to taper off in 2005. Douglas Duncan, chief economist at the Mortgage Bankers Association, said sales of new homes will probably drop to 1.118 million. Sales of existing homes will probably decline to 6.138 million from 6.68 million, he said.

"The housing market is still going to be strong this year, just not historically strong," Duncan said.

An improving job market, rising wages and a growing economy are likely to promote an increase in consumer prices that will lead to an increase in all interest rates this year, including mortgages, according to economists such as Duncan.

By contrast, a slower pace of employment growth than in the first half of 2004 and statements from Federal Reserve policymakers that they will raise the benchmark interest rate at a "measured" pace led mortgage rates to drop more than a half percentage point in the last six months of 2004.

Duncan expects the rate for overnight loans between banks, which the Fed is targeting at 2.25 percent, to rise to 3.2 percent this year. Fed policy makers meet this week and are expected to increase the target to 2.5 percent.

The 30-year mortgage rate, which fell to a three-month low of 5.66 percent last week, may reach 6.2 percent this year, according to the National Association of Realtors.