Prospective home buyers turn cautious

~ Sales of new homes fell 4.3 percent in July, the Commerce Department reported.

The proof keeps piling on: The housing boom is over.

Sales of new homes nationally dropped in July by the largest amount since February, while the inventory of unsold homes climbed to a record high. The Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February.

The July level of 1.072 million units sold was down 21.6 percent from a year earlier and below the 1.100 million that had been expected by analysts.

"Yeah, I think it probably is over," said Dr. Mike Devaney, a finance professor at Southeast Missouri State University who is a real estate appraiser.

Devaney traces the turnaround to the stock-market troubles after the terrorist attacks of Sept. 11, 2001. People were investing in homes instead of an unsteady market, he said. That was bolstered by 40-year lows in interest rates.

New home sales have declined locally, especially in the past six months, said Thomas M. Meyer of Exit Realty-Thomas Meyer Associates.

"We are experiencing what the national numbers are showing. Maybe not as much. It's probably on a more moderate level."

Aaron Abernathy, a real-estate agent and president of the Cape Girardeau County Board of Realtors, said the decline also has to do with the cost of building materials.

"People can get an pre-existing home at a much better price," he said. "It's costing so much more to build them. Inflation takes over regardless of who you are or what you do."

Abernathy said construction costs have gone up 10 to 20 percent. Hurricanes that swept through the Gulf Coast last year pumped up demand for construction materials. The cost of fuel to ship materials is also a factor, he said.

"So people are looking more at existing homes," he said. "They can get the same square footage, but for $10,000 less."

Sales for both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control.

Analysts expect home sales to drop by 10 percent this year.

Prospective home buyers have turned cautious about such a big-ticket item because mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.

The government reported that the median price of a new home was $230,000 in July, down from $238,800 in June and up from $229,200 a year ago.

The Associated Press contributed to this report.

smoyers@semissourian.com

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