Dec. 23, 2005--New home sales plunged in November by the biggest month-to-month decline in over a decade, as rising mortgage rates kept many potential buyers away, the Commerce Department reported Friday.
Sales of single-family homes across the nation fell by 11.3% last month to an annual rate of 1.245 million, below industry expectations and down from a record pace of 1.404 million in October, the department said.
That left a stockpile of 503,000 new homes on the market, compared to 487,000 in October, representing a supply of 4.9 months at the current sales rate, the report showed.
The average price of new homes in November was $225,200, dropping from $283,000 the previous month.
By region, sales in the West fell 22.1% to 342,000, the biggest drop in 10 years. Sales were also down in the Midwest and the South. By contrast, sales were up by 13.4% in the Northeast, to 93,000.
Still, total sales for the year hit 1.202 million, just below a record-high 1.203 million in 2004.
David Lereah, chief economist at the National Association of Realtors, expects home sales next year to be the second-best in history. He called the recent slowdown a "tapping of the brakes" on a red-hot market. "Home sales are coming down from the mountain peak, but they will level-out at a high plateau," Lereah said in a statement Monday, describing the downturn as a healthy transition to a "more normal and balanced market."
At the same time, mortgage rates are creeping up. The NAR expects 30-year fixed-rate mortgages to climb upwards, reaching 6.6% by the second half of 2006, as new-home sales drop by 4.8% to 1.23 million.
Last week, the national average commitment rate on a 30-year fixed-rate mortgage was 6.26%, compared to an average 5.85% over the year, according to Freddie Mac, a national mortgage buyer.
Overall, the impact of the housing market on economic growth has been declining in recent months. Homebuilding and renovations accounted for just 0.43% of economic growth from July to September, a separate Commerce Department report showed Wednesday, compared to 0.62% the previous quarter.