Real Estate News

WSJ: End of Housing Slump Seems to Be Drawing Near

WASHINGTON -- Recent firmness in mortgage applications and an increase in new-home sales suggest the housing slump may be nearly over, limiting the risk of wider damage to the overall economy.

One indication that home-buying demand has leveled off after a yearlong decline comes from the Mortgage Bankers Association, which conducts a weekly mortgage-application survey.

Yesterday, the group said mortgage applications fell sharply last week from the week before. Even so, its indexes of applications for home purchases and refinancings have been rising steadily since summer. The four-week moving average for the MBA's purchase index, which offers a less-volatile picture of the trend, has risen 12% since August, while the four-week average for the group's refinancing index has soared more than 41% since July.

A recent pickup in new-home sales also points to stabilizing demand. The Commerce Department said yesterday that new-home sales rose 3.4% in November to an annual rate of 1.05 million units. While that pace is down more than 15% from a year earlier, it has risen since July and has held fairly steady in recent months.

Despite some continued uncertainty, economists view the recent data as an early indication that the worst of the housing market's downturn may be over. "The net of all the numbers we've gotten is that it looks like the housing market and home sales appear to have stabilized, at least temporarily, in the latter part of the year," said Thomas Lawler, a former economist for Fannie Mae who now runs a consulting firm in Vienna, Va.

If this turns out to be the case, and the housing market begins to rebound next year, the economy would be likely to benefit. The slump has been one of the biggest dampers on the nation's economic growth. In the third quarter, for example, the decline in home building and residential investment shaved more than one percentage point off the annual rate of economic growth. Many economists expect a similar reduction in the fourth quarter but expect some improvement next year.

The chances of a pickup in 2007 partly depend on whether home builders can trim their inventories of unsold homes. Last month, there were 545,000 new homes on the market, or the equivalent of a 6.3-month supply at current sales rates, according to the Commerce data, down from a recent high mark of a 7.2-month supply in July.

Home-buying activity could wane, however, if interest rates rise or other factors, such as employment or the stock market, deteriorate. Economists expect the normally quiet winter months to produce volatile readings and say the best gauge of the housing market will be whether buyers come out in force as usual in the spring.

The median price of a new home -- or the price at which half sold for more and half sold for less -- was $251,700 last month, up from $237,900 a year earlier, the Commerce Department said. The figures aren't adjusted to account for the changing mix of sales. Thus, the November reading may have been distorted by the fact that sales in the higher-priced Northeast rose last month, while sales in lower-priced South fell.

Write to Christopher Conkey at christopher.conkey@wsj.com