Existing home sales slowing

Sales of existing homes fell to an eight-month low in November, leaving the number of houses on the market at the highest since 1986 and suggesting one pillar of the economy will weaken next year.

Home sales dropped 1.7% to a 6.97 million annual rate, the National Association of Realtors said yesterday. Mortgage rates are higher than a year ago and the report showed the median price rose 13.2% since November 2004 to $215,000, making homes less affordable.

The housing slowdown means the world's largest economy may have to depend more on businesses and less on the consumer next year.

A weaker housing market "suggests that consumers won't feel as wealthy and may pull back the reins a bit on spending next year," said Gina Martin, an economist at Wachovia. "Business spending will help make up for the moderation in consumer demand."

The housing industry accounts for only about 5% of the economy and yet generated half of the growth in this year's first six months and more than half of the private jobs added since 2001, Merrill Lynch said in an August report. Price appreciation helped the value of homes climb by $5.2 trillion during the current expansion, or 68% of all wealth creation, according to the Federal Reserve.

Existing-home purchases, which account for about 85% of the residential real estate market, slowed in all four regions and are down from a record 7.35 million pace in June. New-home sales fell 11% in November, the most in 11 years, the Commerce Department said Dec. 23

"Housing activity has peaked," said David Lereah, chief economist at the Realtors group, which predicts sales of previously owned homes will fall to 6.84 million in 2006 from a projected record 7.1 million this year.

The supply of existing homes for sale, another measure of housing demand, increased to 2.9 million in November, the highest since April 1986.