biz.yahoo.com/ap/050927/economy.html?.v=6
Click Here Click Here AP New Home Sales Fall Sharply in August Tuesday September 27, 10:27 am ET By Martin Crutsinger, AP Economics Writer New Home Sales Fall by Largest Amount in 9 Months in August As Housing In dustry Gives Mixed Signals WASHINGTON (AP) -- Sales of new homes plunged in August by the largest am ount in nine months as the nation's housing industry continued to flash mixed signals about whether the boom is starting to fade.
The Commerce Department reported that new home sales declined by 99 perc ent last month to a seasonally adjusted annual rate 124 million units. Even with the slowdown in sales, the sales price rose by 25 percent fro m July's level to $220,300. The bigger-than-expected drop in new home sales could be an indication th at the nation's red-hot housing market is beginning to slow, but reports so far are mixed. On Monday, the National Association of Realtors said that sales of previously owned homes rose by 2 percent in August to 729 million units, the second-highest level on record. Various consumer confidence measures have shown sharp drops recently, reflecting the surge in energy prices including gasolin e that topped $3 per gallon right after Hurricane Katrina shut down Gulf Coast refineries. The 99 percent decline in new home sales was more than double what analy sts had been expecting. The government also revised the July sales pace lower to an annual rate of 137 million units, still a 53 percent incre ase from June. The decline in sales in August was the biggest drop since a 10 percent fa ll in November 2004. Many economists believe that rising mortgage rates are finally starting t o have an impact on the booming housing market. They are still forecasti ng that sales for all of this year will set all-time highs, the fifth st raight year that sales of both new and existing homes have set records. But analysts are forecasting a slight decline in sales for 2006 with pric es moderating and possibly even declining in some of the hottest markets . Federal Reserve Chairman Alan Greenspan has been raising concerns about w hat a cooling housing market might do to the country's banks and overall economy. In a speech Monday to a convention of the American Bankers Association, G reenspan warned that the growing use of more exotic mortgage products su ch as interest-only loans could expose borrowers and the banks that loan ed to them to "significant losses." Greenspan's concern is that borrowers who made only small downpayments to buy their homes could be faced with a mortgage that is higher than the value of the home if home prices start declining, putting them at risk i f they had to sell the home. Greenspan is also concerned that the use of adjustable rate mortgages by homeowners who stretched to buy could expose them to payment shocks if m ortgage rates keep rising. If those borrowers are unable to meet their m ortgage payments, that will expose the banks that are carrying the loans to default risks. But Greenspan also said in Monday's speech that "the vast majority of hom eowners have a sizable equity cushion with which to absorb a potential d ecline in home prices." The report on new home sales showed that the weakness last month was wide spread around the country, led by a sharp 22 percent drop in the Northea st, the biggest setback in that area since last December. Sales in the South, where Hurricane Katrina hit at the end of August, wer e down a smaller 22 percent.
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