New home sales in U.S. increase as prices

fall

Median price takes biggest plunge since 1970; Central

Texas remains immune.

By Martin Crutsinger
ASSOCIATED PRESS
Friday, October 27, 2006

WASHINGTON — The median price of new homes plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.

The Commerce Department reported that the median price in September was $217,100, down 9.7 percent from September 2005. It was the lowest price since September 2004 and the sharpest year-over-year decline since December 1970. The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record.

The price decline for new homes came while the sales pace picked up, rising by 5.3 percent from July's level to a seasonally adjusted annual rate 1.075 million homes. It was the second consecutive increase in sales following three months of declines.

The price drops underscored the severity of the correction in the once-booming housing market, where sales of both new and existing homes soared to record levels for five consecutive years, propelled by the lowest mortgage rates in more than four decades.

This year, with mortgage rates rising through midsummer, sales have cooled considerably, with housing expected to trim more than a percentage point from overall growth in the last half of the year.

The debate is whether the slowdown will be enough to push the country into recession. The Federal Reserve, recognizing the weakness in housing, halted a two-year string of interest rate increases in August and left rates unchanged for a third straight meeting on Wednesday.

The Fed, however, gave no indication that it planned to start cutting rates because of the weakness in housing, saying it was still concerned that inflation remained too high.

So far, Central Texas has been immune to the national slowdown. In the third quarter, new home starts here rose 8 percent and the median price rose 8.5 percent to $196,933.

The 5.3 percent rise in new home sales in September followed a 3.8 percent rise in August and was the biggest one-month gain since an 8 percent increase in March. However, sales had fallen for three straight months from May through July.

The rise in sales last month was led by a 23.9 percent jump in the West. Sales were also up 6.9 percent in the South. However, sales fell by 34.5 percent in the Northeast and were down 6.3 percent in the Midwest.

In other economic news, the government said that orders to U.S. factories for big-ticket manufactured goods, powered by a huge jump in demand for commercial jetliners, soared in September by the largest amount in more than six years.

The Commerce Department reported that orders for durable goods rose by 7.8 percent last month to $226.7 billion. The increase followed two consecutive months of declines and was the biggest gain since June 2000.

The improvement was more than triple the 2.3 percent gain that Wall Street had been expecting, but virtually all of the strength came from a giant 183.2 percent increase in orders for commercial aircraft. Outside of transportation, orders were up just 0.1 percent.