US November new home sales sink 11 percent

Sales of new homes in the U.S. plunged unexpectedly by 11 per cent last month to the lowest level since April, a sign the housing market recovery will be rocky and heavily dependent on the generosity of Washington.

The cause

The slump shows U.S. consumers are taking their time following an extension of a deadline for first-time buyers to qualify for a tax credit. The incentive was set to expire at the end of November, but Congress pushed back the date to April 30 and expanded the program to include current homeowners who relocate.

The weight

New home sales data, released yesterday, are a better indicator of future real estate activity than sales of previously occupied homes, but capture a smaller slice of the market.

Since the U.S. housing bubble burst, new home sales have represented a dwindling share of the overall market. New home sales accounted for just 6 per cent of total single-family home sales last month, down from a peak of more than 18 per cent in summer, 2005.

Buyers have been able to find better prices searching for previously occupied homes, especially among foreclosed properties.

The hand up

The results show how reliant the housing market has been on government assistance. About two million home buyers have taken advantage of the tax credit of up to $8,000 (U.S.) 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 $6,500 for current homeowners.

The builders' view

Builders saw the drop in sales coming: the National Association of Home Builders said last week its index of industry confidence fell to the lowest level since June. The trade group blamed high unemployment and a slow economic recovery for stifling demand.

(Source: Associated Press/Globe & Mail)