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Economy in Brief

New Home Sales Gain 3.4% in November; Prices Also Up, Inventories Down
by Carol Stone* December 27, 2006

New home sales rebounded 3.4% in November to 1.047 million, almost reversing October's decline. October sales were revised higher by 9,000. The Action Economics consensus forecast called for a more modest increase to 1.020 million (see Haver's AS1REPNA database). November sales were up in the Northeast, the Midwest and the West, but still down in the South.

Home prices also rose, with the median gaining 3.2% to $251,700, the highest level since April's $257,000, which is the record high. October prices were revised lower, but those in September were increased.

The November sales pushed down builders' inventories from 553,000 at the end of October to 545,000, making a fourth consecutive monthly decline. At the current sales pace, this level represents 6.3 months' sales. While this is well above the year-ago amount of 4.9 months, it is also well down from July's peak of 7.2 months.

Thus, the housing sector seems to be holding in pretty well. After the substantial "bubble" that began in the middle of 2003, a consolidation was to be expected. But current conditions indicate some stabilization, suggesting that "consolidation" may be an appropriate description, not "implosion". Flexible pricing and sensitive interest rates have helped. In fact, last week's cost for 30-year fixed-rate mortgage commitments is down more than 10 basis points from November's 6.27% shown in the table, giving a total reduction of about 60 basis points from July's high. Here's hoping the New Year extends this performance.

US New Homes, Seas Adj Nov 2006 Oct 2006 Sept 2006 Nov 2005 2005 2004 2003
Total Sales (SAAR, 000s) 1,047 1,013 1,053 1,236 1,280 1,201 1,091
Median Price (NSA, $) 251,700 243,800 225,500 237,900 234,208 217,817 191,383
Inventory: Months' Supply 6.3 6.7 6.6 4.9 4.4 4.0 3.8
FHLMC Mortgage Rate (%) 6.27 6.36 6.41 6.33 5.86 5.84 5.82
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