New Home Sales Fall: Bad Omen For Economy?

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The Commerce Department released data on Thursday that showed that new home sales in US declined in December to a seasonally adjusted annual pace of 307,000. This was, for the first time in four months, that sales have dropped.  Reuters, in a poll of economists, had forecast sales at a 320,000-unit rate. Bloomberg News, in its survey of economists, had forecast a median rate of 321,000 home sales. 2011 was the worst year for the housing industry in almost five decades. The looming prospect of further price declines may have made the majority of Americans postpone their decision of buying a new home. This is despite the fact that mortgage rates are near all-time lows. Foreclosures are likely to increase this year, and this might lead to more distressed properties entering the market, which will adversely impact the recovery in real estate. Two of the country’s four regions, saw a drop in sales. Last month’s decrease in new-home purchases was led by a 10.1 percent drop in the South, while sales also fell in theMidwest. Northeast bucked the trend and saw an increase in demand of 46.7, a reversal from the 16.7 percent decrease recorded in the previous month. In the biggest drop in four months, there was a 2.5 percent fall in the median sales price for a new home, to $210,300 last month. The median sales price was down 12.8 percent compared to December last year. There were 157,000 new homes on the market last month and sales for the calendar year 2011 were down 6.2 percent from the prior year, with 302,000 new single-family homes being sold.

Following the collapse, that led to the 2007-09 recession, the housing market remains burdened by an oversupply of unsold homes and falling prices. Economists are wary of the fact that housing is far from fully recovering. Work on many projects has been stopped because builders find it difficult to arrange for finances and are also conscious of the fact that they have to directly compete with cheaper resale homes. Even after more than four years of the housing bubble burst, many Americans still find buying a home too big a risk to take. Inspite of the fact that new-home sales represent less than 10 percent of the housing market, they have a much deeper impact on the overall economy.  According to the National Association of Home Builders, on an average, each new home built, creates three jobs for a year and generates about $90,000 in tax revenue.

2011 was the third straight year of dismal home construction and the worst recorded year for single-family home building. But in a glimmer of hope, each of the last three months saw an increase in single-family home construction

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