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Sales Plummet, but Housing Supply Numbers Indicate Hope

Feb 5, 2009 - Sales of new homes fell to a record low in December, but according to some experts, the negative news is not the whole story.

The Commerce Department announced this week that new home sales fell 14.7% in December, the lowest level since the series began in 1963. The figures translated to a seasonally adjusted annual rate of 331,000, weaker than the 390,000 annualized pace expected by economists. For 2008 totals, the government estimated 482,000 new homes were sold. This is 37.9% below the 776,000 homes sold in 2007, a record decline.

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But hidden beneath these headlines is a small sign of improvement. National housing supplies cratered last month, pointing towards a potential foundation for our struggling economy's rebound.

In November 2008, inventories of active homebuyers and sales volume indicated 11 months of housing supply. But last month, the housing supply decreased to 9 months. Some experts are marking this as the time when prices will once again start to rise. This provides support for home prices and points to a potential for stronger selling in spring. Home sellers may finally have a reason for optimism.

With data like this, many analysts are suggesting the housing market will start to come out of its slump, and homebuilders are expecting recovery in 2010.

In the meantime, mortgage-related news is still predominantly negative. The median sales price for new homes in December was $206,500, down 9.3% compared with a year earlier. Plus, sales fell in all regions. They fell 28.2% in the Northeast to 28,000 annualized and 20.2% in the West to 71,000. Sales fell 12.1% in the South to 181,000, and 5.6% in the Midwest to 51,000.

In separate reports, the Commerce Department noted orders for durable goods fell 2.6% in December, jobless claims rose in the last week, and the number of workers collecting unemployment hit a record high.

The very nature of the government's housing data can also indicate even larger trouble than current statistics indicate. The Commerce Department's housing data is subject to large sampling and statistical errors: The standard error of 12% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell. Plus, sales are reported when a contract is signed, not at the closing of the sale, and homebuilders have reported a large increase in cancellations in recent months. In other words, reported sales are likely overstated.

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