New-Home Sales Tumbled 9%
Amid Falling Prices in November

New-home sales retreated during November, sinking to the lowest annual rate in 12 years. Home prices also receded, a further negative sign for consumer spending and the economy.

Sales of single-family homes decreased by 9% last month to a seasonally adjusted annual rate of 647,000, the Commerce Department said Friday. October new-home sales rose 1.7% to an annual rate to 711,000; originally, the government said October sales rose by 1.7% to 728,000.

Economists had forecast a drop in November sales to an annual rate of 715,000. The actual rate of 647,000 reported for the month was the lowest recorded since 621,000 in April 1995.

Year over year, new-home sales were 34.4% lower than the level in November 2006. That's the largest year-to-year decline since 35.3% in January 1991.

The steep decline in demand for property is the flip side of a long ascent during the first half of the decade. Builders have responded by slowing groundbreakings. In the third quarter of this year, the housing slump reduced gross domestic product, the sum of U.S. economic activity, by more than a full percentage point.

While GDP surged at a sizzling 4.9% rate July through September, it is seen much weaker -- hampered by the housing correction and credit crunch -- in the current, fourth quarter, which ends Monday. The first estimate for fourth-quarter GDP will be released by the government Jan. 30.

An ominous sign for the economy is dropping home prices. Consumer spending makes up 70% of U.S. economic activity as measured by GDP. When consumers watch the value of their homes shrink, they tend to feel less wealthy, a mood that can act as a damper on spending plans and, in turn, slow economic growth.

The median price of a new home decreased by 0.4% to $239,100 in November from $240,100 in November 2006. The average price advanced by 0.5% to $293,300 from $291,800 a year earlier. In October this year, the median price was $229,500 and the average was $307,900.

The ratio of new houses for sale to houses sold rose during November, going to 9.3. It was 8.8 in October; originally, the government estimated the October ratio at 8.5. Friday's data showed an estimated 505,000 homes for sale at the end of November, down from October's 514,000.

Regionally last month, new-home sales decreased 6.4% in the South, 19.3% in the Northeast, and 27.6% in the Midwest. Sales rose 4% in the West.

An estimated 46,000 homes were actually sold in November, down from 55,000 in October, based on figures not seasonally adjusted.

Chicago PMI Rises, Topping Expectations

In a separate report, business activity in the heavily industrialized Chicago area expanded in December, marking the second consecutive month that a closely watched index from the National Association of Purchasing Management-Chicago topped economists' expectations.

NAPM Chicago said Friday that its business barometer, commonly referred to as Chicago PMI, stood at 56.6 in December, compared with the previous month's 52.9. Analysts surveyed by Dow Jones Newswires had, on average, pegged the December reading at 52. Readings above 50 signal expansion of economic activity.

NAPM Chicago said in a press release that "while the overall trend of the Business Barometer continues to document a softening economy, the strength of the November-December reports provides support for a 'soft landing' scenario."

Despite the increase in the headline number, the production component of the index fell to 55.4 from 57.4 in November, while employment dropped to 49 from 54.4. The prices paid category, a gauge of inflation, fell to 63.8 from 76.2, showing that price pressures are still prevalent but not as widespread as they were in November.

"A theme for the December report, similar to the November report, could be normalcy, since individual indexes were unspectacular," NAPM-Chicago said, noting that "the December measure of the economy is a modest roll-back in the cloud cover, at least for the month."

-- Stephen Wisnefski contributed to this article.

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