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Fri, Dec 25, 2009 - Page 10 News List

Americans spend more, but not on new homes

BLEAK MID-WINTER Although completed home resales in the US rose 7 percent last month, most economists expect sales to decline during the winter months


Americans are starting to spend a bit more money, but not enough to power a strong economic recovery.

Consumer spending posted its second straight monthly increase last month, rising 0.5 percent, the government said on Wednesday. But new homes clearly weren’t on the shopping list. New home sales plunged unexpectedly to the lowest level since April.

The reports were evidence that the recovery from a deep recession is proceeding in fits and starts, with households struggling in a bleak job market. At the same time, economists said the economy was much improved from this time last year, when the nation was gripped by the financial crisis.

“People are continuing to pay down their debts, and they remain concerned about their financial futures and whether they will have jobs,” said Sal Guatieri, an economist at BMO Capital Markets.

“Santa’s toy bag won’t exactly be brimming with goodies this year, but at least he will show up, unlike last year,” he said.

Americans’ income, meanwhile, ticked up at the fastest rate in six months last month, though the 0.4 percent increase was less than economists expected. That reflected a US$16.1 billion increase in wages and salaries, a result of last month’s drop in unemployment.

But consumers are still worried about job security, and that weighs on decisions about big purchases like new homes.

The 11 percent slump in new home sales from October’s pace shows that consumers are taking their time following an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive, worth up to US$8,000, was set to expire at the end of last month. But Congress pushed back the date to April 30 and expanded the program to include current homeowners who move.

The only strong region was the Midwest, where sales rose 21 percent. Sales fell by 21 percent in the South, 9 percent in the West and 3 percent in the Northeast.

And buyers are putting their dreams of palatial McMansions aside.

Vince Napolitano, president of Napolitano Homes in Virginia Beach, Virginia, is hoping to sell 110 houses next year, up from fewer than 70 this year, by focusing on smaller homes that sell for US$400,000 or less.

“Those who are out there looking are buying something that they truly can afford,” he said. “They’re having to settle for smaller homes.”

New home sales are considered a good barometer of future real estate activity because they reflect sales agreements signed but not yet completed. That’s why most economists expect completed sales to decline during the winter months.

While buyers of previously occupied homes were rushing to close deals by the end of last month, buyers of new homes were aware early in the month they could shop longer because of the extension of the tax credit.

Though completed home resales rose 7 percent last month, most economists expect sales to decline during the winter months without the looming tax credit deadline.

The results show how reliant the housing market has been on government assistance. About 2 million homebuyers have taken advantage of the tax credit of up to US$8,000 for first-time buyers, the National Association of Realtors estimated this week. Another 2.4 million are expected to either tap that subsidy or another one for up to US$6,500 for current homeowners.

Despite the poor showing from new home buyers, the housing market has been recovering from the worst downturn in decades, largely due to the massive infusion of federal assistance.

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