Homes Sales Fell in December; Condo Market May Falter

The number of homes sold slipped 5.7% in December to the lowest level in three months. The housing market isn't expected to collapse, but the demand for condominiums is expected to slow.
By: Joi Preciphs: The Wall Street Journal Online
Sales of existing homes fell in December to their lowest level in three months, but they still set a record for the year.

The National Association of Realtors said nationwide sales of previously owned homes fell 5.7% to an annual rate of 6.60 million last month from November's revised annual rate of 7.0 million. Analysts had projected a 6.87 million sales rate in the existing-home market, which includes single-family residences, condominiums, townhomes and co-ops.

The national median price for existing homes of all types in December was $211,000, down from an unrevised $215,000 in November, but up 10.5% from December 2004. The inventory of homes on the market increased slightly to a 5.1 months' supply last month, compared with 5.0 months in November.

The pattern was mixed regionally, with sales falling 11.4% in the West, 7.2% in the South, and 2.6% in the Midwest. Sales in the Northeast were unchanged.

Patrick Newport, U.S. economist at consulting firm Global Insight in Waltham, Mass., said in a statement that the movement of interest rates is cooling the housing market and will continue to do so in 2006.

"Interest rates have eased in recent weeks, but we are expecting them to drift back up over the first half of 2006," he said, adding that if the Federal Reserve raises interest rates two more times before pausing, the increases "will cool off the housing market and deflate many local housing bubbles."

Mr. Newport doesn't expect the market to collapse anytime soon. The first casualties might come in places like the condo market, where the inventory of unsold homes jumped 8% last month. Sales of existing condominiums and co-ops increased a modest 1.6% in December, according to the NAR report.

Financial institutions have been keeping a watchful eye on the condo market and in some cases have scaled back lending for new condo developments. "We see risk of a substantial condo-price decline in certain frothy markets, based on record high inventory levels and the recent rapid price appreciation in condos," said Banc of America Securities analyst Daniel Oppenheim.

Despite the apparent slowing, existing-home sales for the year reached 7.072 million units, setting their fifth successive annual record, the NAR said. Home prices still remain strong, despite some softening. Given these factors, NAR Chief Economist David Lereah said in a statement that there is a "soft landing in sight for the housing sector."

"The level of home-sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead," Mr. Lereah said, adding that he expects the 2006 housing market to "remain historically high but lower" than 2005.

The recent boost in mortgage applications might suggest a "partial rebound in sales is directly ahead," Banc of America Securities economist Gary Bigg said. Mortgage giant Freddie Mac said the average 30-year fixed-rate mortgage was 6.27% last month, down from November's 6.33%.