December existing home sales rise by 6.5 percent

A flood of federal bailout money pushed a private research group’s monthly forecast of economic activity unexpectedly higher in December, while a decline in home prices boosted housing sales.

Home resales rose 6.5% in December to an annual rate of 4.74 million units, as the median price plunged 15.3% to $175,400 from $207,000 a year earlier. The decline is the largest year-over-year drop in records going back to 1968.

Also, the New York-based Conference Board’s monthly forecast of economic activity increased 0.3% in December. Economists surveyed by Thomson Reuters had expected a 0.3% decline.

The group’s index of leading economic indicators fell 0.4% in November and a revised 1.0% in October.

If the jump in the money supply had been excluded, the index would have dropped a hefty 0.6% in December, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

The index is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits, average weekly manufacturing hours and initial claims for unemployment benefits.

With most components falling steeply, the Conference Board said unemployment could rise to 9% from 7.2% as the country remains in an intense recession through spring.

The Conference Board’s leading economic index is about 5% lower than its most recent peak in July 2007. Over the last six months, a separate Conference Board index has had its largest drop since 1980.

In home sales, buyers took advantage of dramatically lower prices, especially in distressed markets such as California, Florida and Nevada, where foreclosures have swamped the market. Prices in the West dropped 31.5% from a year earlier, a home sales report Monday from the National Assn. of Realtors said.

“Buyers will continue to have an edge over sellers for the foreseeable future,” said Lawrence Yun, the organization’s economist.

For all of 2008, there were 4.9 million home resales, down more than 13% from a year earlier and the lowest total since 1997.