Thursday, January 25, 2007

Existing Homes Sales Decrease .8%

From Bloomberg

Sales of previously owned homes in the U.S. declined in December for the first time in three months, capping the biggest annual drop since 1989, a slide that's shown signs of bottoming.

Purchases dropped 0.8 percent to an annual rate of 6.22 million, the National Association of Realtors said today in Washington. For the entire year, sales fell 8.4 percent from 2005's record. In a sign the slide may be nearing an end, the number of homes on the market decreased for a second month.

``This grinding sort of correction will continue for much of this year,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Housing will make a negative contribution to the economy this year, but the declines won't be as big as those we have seen in the most recent past.''

The best news in this report is the drop in inventory, which decreased from a 7.3 month supply to a 6.8 month supply. While that figure is still high, it is lower than recent inventory readings.

It's important to remember that interest rates have increased to around 4.85%. This does not bode well for continued strength in the housing market. When interest rates dropped from this level in mid-October we saw an increase in housing sales. Now that rates have returned to this level, I would expect sales to decrease.

While sales appear to have stabilized over the last four months, the high level of consumer debt indicates we are not out of the woods yet in housing.