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New Home Sales Fell In January

Sales of new homes fell for the second time in three months in January, providing further evidence that the nation's five-year housing boom is slowing.

The Commerce Department reported Monday that sales of new single-family homes dropped by 5 percent to a seasonally adjusted annual rate of 1.233 million units last month.

That was a bigger drop than analysts had been expecting and provided support to the view that the housing market, after setting sales records for five straight years, is slowing under the impact of rising mortgage rates.

The 5 percent January drop in sales followed a revised 3.8 percent increase in December and was the biggest setback since a 7 percent drop in November.

Despite the fall in sales, the median price of a new home was up in January to $238,100, compared with $229,000 in December. The median is the point where half the homes sold for more and half for less. The January figure was the highest since an all-time high of $243,900 set in October.

Economists had expected sales to be supported by the warmest January in more than 100 years of record-keeping. Unusually mild weather had pushed up construction of new homes and apartments by 14.5 percent last month, the biggest increase in more than three decades.

However, the milder weather did not have the same positive impact on sales, which fell in all regions of the country except the West.

The biggest decline was a 14.9 percent decrease in sales in the Northeast, which followed an even bigger 23 percent plunge in sales in December. Sales in the Midwest were down 10.8 percent after having risen by 21.2 percent in December.

Sales fell by 10.3 percent in the South in January following a 1.2 percent gain in December.

Bucking the national trend, sales in the West posted an 11.3 percent increase in January after a 6.3 percent gain in December.

Mortgage rates have been rising gradually for a number of months with the 30-year mortgage now at 6.26 percent, according to the latest Freddie Mac survey. Many analysts believe that 30-year mortgages will rise to between 6.5 percent and 7 percent by the end of this year.

They think that increase will be enough to trim sales of both new and existing homes and slow the double-digit gains in prices seen in recent years. The National Association of Realtors reported earlier this month that a record 72 metropolitan areas saw double-digit gains in home prices in the final three months of 2005 compared to the price levels at the end of 2004.

Some economists have expressed concerns that once home sales start to slow, the big price increases of recent years could turn into sharp declines in a similar pattern to how the speculative bubble in stocks burst in 2000.

But new Fed Chairman Ben Bernanke has said the most likely outcome is for a slowing in housing activity rather than a severe crash.

Martin Crutsinger

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