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Ahead of the Bell: New Home Sales

AP News
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Posted: Dec 23, 2011 6:34 AM
Ahead of the Bell: New Home Sales

Americans probably bought more homes in November, but 2011 will still likely end up as the worst year for new-home sales since the government began keeping records in 1963.

Sales last month are expected to rise to a seasonally adjusted annual pace of 312,000, according to a survey of economists by FactSet. That's less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

The Commerce Department will release the report at 10 a.m. Eastern time Friday.

In October, new-home sales rose 1.3 percent to a seasonally adjusted annual rate of 307,000. But the median price fell to its lowest level of the year: $212,300.

The year's sales pace is trailing last year's total of 323,000 new homes sold, the fewest on record.

Economists say housing is a long way from fully recovering. Builders have stopped working on many projects because it's been hard for them to get financing or to compete with cheaper re-sale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Even so, home construction has begun a gradual comeback and should add to economic growth in 2011. The main reason is that the rate of apartment construction is nearly twice as fast as it was two years ago.

And rising interest from would-be buyers left U.S. homebuilders less pessimistic about the housing market in December, according to the National Association of Home Builders/Wells Fargo builder sentiment index. It rose two points this month, reaching its highest level since May 2010.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

Home prices have tumbled, the job market remains weak and unemployment is still high at 8.6 percent. Some people who want to buy can't qualify for a loan or make the higher down payments that banks are demanding.

Sales are slumping even though mortgage rates have fallen to record lows. This week, the average rate on a 30-year fixed home loan dropped to 3.91 percent, the lowest rate ever, mortgage buyer Freddie Mac said Thursday.

In selling new homes, builders must compete with foreclosures and short sales _ when lenders accept less for a house than what is owed on the mortgage.

Yet sales of previously owned homes are also dismal. They rose slightly last month to a seasonally adjusted annual rate of 4.42 million units, the National Association of Realtors said this week.

That's below the 6 million that economists say is consistent with sales in a healthy market and barely ahead of 2008's revised totals, which were the worst in 13 years.