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New home sales tumble 11 percent
November sales post biggest drop in more than a decade in latest sign the housing market is cooling.
December 23, 2005: 11:58 AM EST
By Chris Isidore, CNNMoney.com senior writer
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NEW YORK (CNNMoney.com) - Sales of new homes tumbled 11 percent in November, the biggest drop in more than a decade, in another sign pointing to a slowdown in the nation's real estate market.

The decline, which was larger than forecasts from Wall Street economists, was from record sales in October. The drop was the biggest since a 24 percent decline in new home sales in January 1994.

The Census Bureau reported Friday that the annual pace of new home sales dipped to 1.25 million in November from the record high of 1.4 million in October, which was revised slightly lower. Economist surveyed by Briefing.com had forecast sales would slow to a 1.3 million annual rate.

Still, while the November reading is also the slowest pace for new home sales since January, it is relatively strong by historic standards. It would have been a record high as recently at February 2004.

"While we are starting to see some of the softness we're projecting for 2006, this is obviously still a strong number," said Phillip Neuhart, economist with Wachovia Securities. "It's not a crash-and-burn situation. We do expect a soft landing next year."

Questions about earlier report

Some of the big drop may be due to the October report being somewhat of an aberration. Many real estate economists questioned the validity of the 13 percent jump in new home sales in that earlier reading, the biggest spike in sales in 12 years. Forecasts had been for a slight decline.

In fact, the latest reading only brings sales to just under the level seen in September, 1.26 million homes.

But those questions aside, there have been growing signs of a cooling real estate market in recent months due to rising mortgage rates, which boost the cost of buying a new home.

The National Association of Home Builders has found a declining level of confidence among home builders, although the Census Bureau's report on housing starts and building permits earlier this week suggested building should remain solid despite rising rates.

Mortgage financing firm Freddie Mac said 30-year, fixed-rate mortgages averaged 6.33 percent in November, up more than a half of a percentage point in just two months, and the highest level since July 2002.

But rates have retreated slightly in the firm's weekly surveys in December.

Sales of new homes, while a small part of the housing market, are seen as more of a leading indicator than existing home sales.

That's because existing home sales are tallied based on closings, which usually occur a month or two after contracts are signed and mortgage rates are locked in. New home sales are based on contract signings, which can often be before construction begins.

Meanwhile, the debate rages over whether there's a bubble in the market that's likely to pop, sparking big declines in home prices, or whether there will simply be a gradual slowdown in the market.

The latter scenario would probably slow price appreciation and lead to scattered price declines in some markets next year.

The latest report shows prices for new homes down slightly from October, although they were up modestly from a year earlier.

The median new home price fell 0.6 percent last month to $234,800, though it was up 4.6 percent from a year earlier. Half of homes sold for more than the median, the rest for less.

The average home price fell 2.6 percent to $290,600, but that was still up 2.5 percent from a year ago.

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