WRAPUP 3-Fall in U.S. new home sales fans fears on recovery

* U.S. new home sales unexpectedly fall in December

* Median home price up from November, highest in 7 months

* Supply of new homes on market lowest since 1971
(Adds Fed rate decision, updates markets)

By Lucia Mutikani

WASHINGTON, Jan 27 (BestGrowthStock) – Sales of newly built U.S.
single-family homes fell unexpectedly in December as the bounce
from an initial tax credit fizzled, the latest sign that the
government-led housing recovery might be losing some steam.

The government report on Wednesday followed a report
showing a plunge last month in sales of previously owned homes
and a continued decline in sentiment among homebuilders, which
could bode ill for the broader recovery from the worst U.S.
recession since the Great Depression of the 1930s.

New home sales fell 7.6 percent to a 342,000 unit annual
rate last month from an upwardly revised 370,000 unit pace in
November. It was the second straight month that new home sales
had fallen. Markets had expected a 370,000 unit annual pace
from November’s previously reported 355,000 unit rate.

“The figures add to recent evidence that the recovery in
the housing market will falter once the fiscal support is
removed,” said Paul Dales, U.S. economist at Capital Economics
in Toronto.

The Federal Reserve on Wednesday left overnight U.S.
lending rates near zero as expected and repeated its pledge to
keep them low for an extended period.

However, the Fed — the U.S. central bank — dropped from
its policy statement a reference to improvement in the housing
market and reiterated plans to end purchases of mortgage-backed
securities in March. The program had depressed mortgage rates,
contributing to the housing market’s healing in recent months.

U.S. stocks (Read more about the stock market today. ) (.DJI: ) extended losses on the Fed statement,
while prices for government debt (US10YT=RR: ) held at higher
levels. The dollar added to gains against the euro (EUR=: ).

New home sales for the whole of 2009 slumped 22.9 percent
to a record low 374,000 units, the Commerce Department said.

A separate report showed mortgage applications fell for the
first time in a month last week as demand for home refinancing
loans dropped sharply.

Demand for loans to buy a home also fell, but on a smaller
scale, the Mortgage Bankers Association said. Its index of
mortgage applications fell 10.9 percent to 513.0 in the week
ended Jan. 22. For details see [ID:N27180786].

RECOVERY SHOWING FATIGUE

The housing market recovery is showing some signs of
fatigue after a surge in sales as first-time buyers rushed to
take advantage of a popular tax credit, which had been
scheduled to expire in November.

It has since been expanded and extended until June this
year and while analysts expect home sales to pick up as a
result, they reckon the pace will not be as strong as witnessed
with the initial tax credit.

“This report does not totally ruin the notion that housing
is recovering, but it does underscore the fragility of that
recovery. It’s not good news for broader economic growth,” said
Dana Saporta, an economist at Stone & McCarthy Research in
Princeton, New Jersey.

The housing market was the main catalyst of the most
painful downturn in 70 years and renewed weakness could hobble
the economic recovery. Investment in new homes contributed to
growth in the third quarter for the first time since 2005.

New home sales were also losing out to the existing home
sales market, with a flood of foreclosures depressing prices,
analysts said. Some said the drop in sales last month could not
be entirely blamed on the expiry of the original tax credit.

“That credit was reinstated in early November, and since
new home sales are recorded at the time of contract signing,
that should have given buyers who missed the first credit
plenty of time to get back into the market in December, if they
were so inclined,” said Michael Feroli, an economist at
JPMorgan in New York.

Despite the slump in sales there were a few bright spots in
Wednesday’s report. The median sale price for a new home rose
5.2 percent last month from November to $221,300, the highest
in seven months and the biggest rise since April 2009. Compared
to December 2008, the median sale price fell 3.6 percent.

The number of new homes on the market last month dropped
1.7 percent to 231,000 units, the lowest since April 1971.
However, December’s weak sales pace left the supply of homes
available for sale at 8.1 months’ worth, the highest since June
2009, from 7.6 months in November.

For graphic on new home sales see:
http://link.reuters.com/ked26h

Growth Stocks

(Additional reporting by Julie Haviv in New York; Editing by
James Dalgleish)

WRAPUP 3-Fall in U.S. new home sales fans fears on recovery