LITTLE ROCK — Sales of new homes fell unexpectedly last month to the lowest level since April, a sign the housing market recovery will be rocky and heavily dependent on the generosity of Uncle Sam.
In a separate report Wednesday, the Commerce Department said personal incomes rose in November at the fastest pace in six months and spending posted a second-straight increase. But economists cautioned that the gains remain too weak to sustain a strong economic recovery.
Stocks fluctuated between gains and losses after the reports. The Dow Jones industrial average rose 1.51, or 0.01 percent, to 10,466.44.
The 11.3 percent slump in new-home sales from October’s pace shows that consumers are taking their time after an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive was set to expire at the end of November, but Congress pushed back the date to April 30 and expanded the program to include current homeowners who relocate.
“The tax credit put a Band-Aid over the housing problem, and in October and November we ripped it off” as it was set to expire, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, N.C., who projected sales would fall. “Demand for housing is not likely to pick up on a consistent basis until we start to see some improvement in employment.”
New-home sales data are a better indicator of future real estate activity than sales of previously occupied homes but capture a smaller slice of the market.
Home resales in November, reported Tuesday, rose 7.4 percent to a seasonally adjusted annual rate of 6.54 million.
The new-home figures tally sales agreements signed in November, while home-resale numbers reflect contracts signed over the summer that were completed in November.
The results show how reliant the housing market has been on government assistance. About 2 million homebuyers have taken advantage of the tax credit of up to $8,000 for first-time buyers, the National Association of Realtors estimated this week. An additional 2.4 million are expected to either tap that subsidy or another one for up to $6,500 for current homeowners.
The Federal Reserve is also snapping up $1.25 trillion in mortgage-backed securities to help keep interest rates low, which makes payments more affordable.
Despite the poor showing from new-home buyers, the housing market has been recovering from the worst downturn in decades, largely because of a massive infusion of federal assistance. New home sales are up 8 percent from the bottom in January but 74 percent below the peak in July 2005. Compared with November last year, sales were off 9 percent.
The Commerce Department said new-home sales hit a seasonally adjusted annual rate of 355,000 last month, off from a downwardly revised 400,000 pace in October. Economists surveyed by Thomson Reuters had expected 440,000.
Builders saw the drop coming: The National Association of Home Builders said last week that its index of industry confidence fell to the lowest level since June. The trade group blamed high unemployment and a slow economic recovery that are stifling demand.
The only strong region was the Midwest, where sales rose 21 percent. Sales fell by 21 percent in the South, 9 percent in the West and 3 percent in the Northeast.
According to the Commerce Department income report, after-tax incomes are rising at an annual rate of 1.2 percent, after taking inflation into account. Economists say the recovery will require higher levels of income and spending. This is especially true at a time when households are using some income to shrink debt loads and rebuild savings rather than spend.
“Annualized income growth of a little over 1 percent will not be enough to drive a significant recoveryin consumption at the same time that debt needs to be paid down,” said Paul Dales, U.S. economist at Capital Economics.
Economists viewed the new-home sales and income reports as evidence that the recovery from a deep recession is proceeding in fits and starts, with households struggling with a bleak job market. At the same time, analysts said the economy is much improved from this time last year, when the nation was gripped by the financial crisis.
“People are continuing to pay down their debts, and they remain concerned about their financial futures and whether they will have jobs,” said Sal Guatieri, an economist at BMO Capital Markets. “Santa’s toy bag won’t exactly be brimming with goodies this year, but at least he will show up, unlike last year.”
Consumer spending, in particular, is closely watched because it accounts for 70 percent of economic activity. A revival in spending this summer, spurred by the government’s “cash for clunkers” program, helped lift overalleconomic growth back into positive territory, the strongest signal yet that the country has emerged from its deepest recession since the Great Depression.
The 0.4 percent rise in incomes followed a 0.3 percent October gain. It was the best showing since a 1.5 percent spurt in May, a month when incomes were boosted by government payments and tax relief from the $787 billion economic stimulus program.
The 0.5 percent rise in consumer spending reflected the surprisingly strong 1.3 percent jump in retail sales that occurred during November - a boost that came from shoppers crowding malls seeking deep discounts over the Thanksgiving weekend.
Information for this article was contributed by Alan Zibel and Martin Crutsinger of The Associated Press; and by Timothy R. Homan and Bob Willis of Bloomberg News.
Business, Pages 21 on 12/24/2009