NEW YORK (CNN/Money) -
The pace of new home sales in the United States slowed for the second straight month in December, the government said Wednesday, missing Wall Street expectations for a gain.
The Commerce Department said the pace of new single-family home sales fell 5.1 percent to a seasonally adjusted annual rate of 1.06 million units from a revised rate of 1.12 million units in November. Economists, on average, expected a pace of 1.1 million units, according to Briefing.com.
Still, in all of 2003, 1.085 million new homes were sold, a new record, compared with 973,000 in 2002.
"The overall level of home sales is still healthy, but it's likely not going to be able to continue to grow in 2004 the way it grew in 2003," said Kevin Logan, chief economist at Dresdner Kleinwort Wasserstein. "It may be topping out, and sales will move sideways -- but that's not a bad thing, given the high level of sales."
The median sales price for a new home slipped to $197,600 from a record $204,300 in November.
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U.S. stock prices had little reaction to the report, continuing to move higher in early trading. Treasury bond prices rose, helped by a separate Commerce Department report showing weaker-than-expected orders for durable manufactured goods in December.
The housing market has been one of the strongest sectors of the economy in recent years, helped along by the lowest mortgage rates in a generation.
In turn, the housing market has helped support consumer spending, which makes up more than two-thirds of the total economy. A surge in home prices made homeowners feel wealthier, easing the sting of a three-year bear market in stocks, and a boom in mortgage refinancing cut mortgage borrowers' monthly payments and gave them some extra cash to spend.
Rates began to rise in the second half of 2003, stifling the refi boom and leading many analysts to expect the housing market to slow down in 2004. Sales of new and pre-owned homes did, in fact, slow down in October and November.
But interest rates have stayed stubbornly low, keeping housing demand high. Last week, the Commerce Department reported new-home construction at a 25-year high in December. Earlier this week, the nation's realtors said sales of pre-owned homes -- the biggest sector of the housing market -- were strong in December.
And rates seem likely to stay relatively low for much of the year, with the Federal Reserve promising to keep them subdued. Fed policy makers meet this week to discuss interest rates and are widely expected to leave a key overnight bank lending rate at a 41-year low.
Housing has been so strong, in fact, that some observers have worried there is a housing-market bubble, akin to the stock market bubble of the late 1990s. The fear is that home prices are artificially high and in danger of a sudden decline, which would hurt homeowners.
But most economists dismiss this worry. Even as they acknowledge some local housing markets may be in bubbles, they also say housing supply seems to be at an appropriate level -- unlike the late 1980s and early 1990s, when builders slapped together houses in a speculative frenzy that resulted in a glut of inventory and sudden price drop.
In the Commerce Department's report, the pace of sales in the Northeast surged 12.1 percent, and the pace in the Midwest jumped 8.7 percent. But in the South and the West, the biggest and second-biggest housing markets, the sales pace fell 8.1 percent and 11.2 percent, respectively.