New-Home Sales Fall to Level of 1982 Recession : Real estate: Economists are hopeful that renewed consumer confidence after the war will turn around January’s 12% drop.
New-home sales plunged 12% during January, dropping to the lowest level since the depths of the recession in 1982, the Commerce Department reported Monday.
But economists are hopeful that the sales drought will disappear in a flood of consumer confidence accompanying victory in the Persian Gulf War.
“Our folks tell us foot traffic has been up in February, there are serious lookers, and the number of contracts increased,” said John Tuccillo, chief economist for the National Assn. of Realtors. Sales will improve “a little in the first half and a lot in the second half,” he predicted.
Sales plummeted to an annually adjusted rate of 408,000 during January, down from the revised December figure of 465,000 and a huge drop from a year ago, when the rate was 627,000.
The deepening recession and the wave of uncertainty generated by the beginning of the air war Jan. 17 combined to pulverize the housing market. Sales fell to the lowest level since August, 1982, when the annual rate was 407,000 and the nation was mired in the worst economic slump since the Great Depression.
Prices also fell as buyers could choose carefully from among a big inventory of new homes. The median sales price--half are higher and half lower--was $121,800 in January, compared to $126,900 in December and $125,000 a year ago.
There was a substantial supply of unsold new homes, an estimate of 316,000 in January. That represented 9.3 months worth of supply at the current sales rate. A year ago, the backlog of unsold homes was just seven months’ worth.
January’s dismal figures should not cause excessive concern, according to economist James Christian, an expert in housing finance and savings and loan issues. “Yes, the figures are awful, but it is not surprising given the state of consumer confidence at that time,” he said.
“I think we’re looking at something on the other side of the hill, behind us, before the end of the war,” Christian said. “The decline in consumer confidence was too astounding not to be war related. When people are in that mood, purchases that can be postponed will be postponed.”
With the war over, he said, “we have to have a rebound in consumer confidence.”
He expects a gradual improvement in sales but warns that buyers are still cautious, “waiting to see if prices come down further.”
The new-home market is plagued by the “mini-mansion syndrome,” a surplus of costly, hard-to-sell homes, according to Christian.
“We need to find a way to build a house first-time buyers can afford,” he said.
The resale market for homes is also sluggish. Prices rose slightly for homes being resold in January, making it tougher for a typical family to buy one of these older homes.
The National Assn. of Realtors has an affordability index measuring the ability of a family with the median income to buy a median-priced home, using a 20% down payment and a mortgage covering 80% of the cost.
In January, the income level of $35,700 gave a family 114.4% of the income needed to buy the median-priced home, which cost $94,200.
The index was 114.4, down from 116.7 in December. The increase in prices in December overshadowed the gains in income and the benefits from reduced mortgage rates.
The West, dominated by California, was the most expensive region, where a family with the median income--$38,208--had only 84.9% of the money needed to qualify for buying a home priced at $138,200.
A Western family would need an income of $45,011 to win a lender’s approval to buy the typical home, which carried a mortgage rate of 9.6% and a monthly payment--interest and principal--of $938.
The easiest market for buyers of resale home in January was the Midwest, where the median income was $36,590. This gave a family 145.7% of the money needed to buy the median home, costing a modest $74,500.
NEW HOME SALES
Seasonally adjusted annual rate, thousands of units.
Jan., ‘91: 408
Dec., ‘90: 465
Jan., ‘90: 672
Source: Commerce Department.
