New Home Sales Drop Hard in November
Although many economists are reticent to interpret the disappointing sales as pointing to a broader slowdown of the economy, the fact that sales dropped so sharply from the record level in October is at least of some concern because it points to the possibility that consumers in October were rushing in unusually large numbers to lock in house purchasesand, therefore, mortgage ratesin advance of difficulties they anticipate they would have if they were to wait.
The National Association of Home Builders, trying to provide an upbeat assessment of the large November drop, indicated that wet weather during the month was a contributing factor to the slowdown; however, even the home builders' group forecasts a pullback in new home sales of as much as 5% in 2005.
Adding to the mounting evidence of a slow burst in the "housing bubble" was news released earlier that the median price of a new house in November was just over $206,000, its lowest level since December of last year. Additionally, the time on market for an existing home on the market grew from 3.9 months to 4.5 months, indicating increasing difficulties for sellers trying to meet buyers willing and able to pay listed asking prices.
Traditionally seen as a bellwether of future economic activity, home sales are particularly sensitive to prevailing interest rates, as well as to expectations about the direction and magnitude of possible changes. With the Federal Reserve Board acting in five consecutive actions to raise benchmark short-term rates, and with record federal budget deficits putting unprecedented demand for lendable funds on the capital markets, sustained, strong growth for the U.S. economy in 2005 may prove difficult to achieve.