Housing slowdown will hurt rest of economy

Sales fell in December, marking the third straight monthly decline.
WASHINGTON (AP) -- The five-year housing boom is showing increased signs of cooling, and that's likely to mean slower growth for the entire national economy. The big question now is whether home prices will come crashing to earth with even more severe consequences.
The National Association of Realtors reported Wednesday that sales of existing homes climbed to an all-time high of 7.072 million units in 2005, up 4.2 percent from 2004 and the fifth straight year sales have set a record.
However, in a sign of slowing activity, sales fell by 5.7 percent in December, marking the third straight monthly decline, something that had not occurred since early 2002.
"The bloom is definitely off the housing rose. Housing peaked last summer and has been weakening ever since," said Mark Zandi, chief economist at Moody's Economy.com.
Declining numbers
Analysts are forecasting that sales of both existing and new homes will fall this year, perhaps by as much as 10 percent, reflecting the adverse impact of rising mortgage rates and buyer resistance to current price levels.
The Realtors reported that the median price for an existing home sold in 2005 rose to $208,700, up 12.7 percent from 2004. That was the biggest annual increase since a 14.4 percent rise in 1979.
But David Lereah, chief economist for the Realtors, said the days of double-digit price gains were probably coming to an end. He predicted price increases would slow to more normal gains of around 5 percent to 6 percent this year. Some analysts cautioned that the hottest markets in places like Florida and California could see actual price declines.
On Wall Street, the Dow Jones industrial average edged down 2.48 points to close at 10,709.74 as investors continued to worry about disappointing corporate earnings.
The boom in housing has boosted overall economic activity over the past five years. Zandi said he believed that about 1 percentage point of last year's estimated economic growth of 3.5 percent occurred because of the effects of the strong housing market.
Housing increased employment in construction industries and boosted consumer spending, which accounts for two-thirds of total economic activity, as rising home values allowed millions of Americans to refinance their homes or take out home equity loans to support higher spending on consumer goods.
Analysts said the economy could be in trouble this year unless other forces take up the slack from a slowdown in housing.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.