WASHINGTON, D.C. - December total existing home sales declined by 5.7 percent to 6.60 million (seasonally-adjusted annualized rate) -- the third consecutive month of decline to the slowest pace since February 2004.  Some of these declines might be due to adverse weather in December and sales could bounce back in January with higher-<br/>than-normal temperatures.  Single-family sales declined by 6.8 percent from November and by 3.1 percent from last December -- the first year-over-year decline since August 2002.  After three consecutive months of decline, condo sales gained by 1.6 percent in December.  For all of 2005, total existing home sales set a fifth consecutive annual record of 7,072,000 units, up 4.2 percent from 6,784,000 in 2004.<br/><br/>December new home sales increased by 2.9 percent to 1.269 million units (seasonally-adjusted annualized rate).  For all 2005, 1.282 million new homes were sold -- a fifth consecutive record high.  Regionally, sales declined in the Northeast (23 percent) and the South (2.6 percent), while sales increased in the West (11 percent) and the Midwest (23 percent).<br/><br/>Total housing starts declined by 8.9 percent in December to 1.933 million units (seasonally adjusted annualized rate).  Single-family starts decreased by 12.3 percent, while 2-4 and 5-and-over units increased by 3.0 percent and 11.0 percent, respectively.  For all of 2005, total housing starts rose by 5.6 percent to 2.065 million, second only to the record 2.356 million in 1972.  Single-family starts rose by 6.4 percent in 2005 to a record 1.714 million.  Starts of 5-or-more units were relatively flat, increasing by 2.2 percent to 309,400 units in 2005.  Reversing the increases in the previous month, starts declined significantly in three regions: 24 percent in the Midwest; 22 percent in the West; and 14 percent in the Northeast.  They rose by 5.2 percent in the South -- the only region with declining starts in November.<br/><br/>Inventory of Homes<br/><br/>The number of total existing homes for sale dropped for the month but increased by 26.3 percent from a year ago.  The months supply (inventory/sales ratio) increased to 5.1 months -- the highest since April 2003.  Condo inventories rose by 66.4 percent from a year ago, with the months supply increasing to 6.2 months from only 3.9 months a year ago. <br/><br/>Inventories of homes on the market continued to set records, rising by 2.4 percent to 516,000 units, with the months supply remaining unchanged at 4.9 months.  Both the months supply and the inventories have risen significantly from a year ago, however, with the months supply rising from 4.1 months and the number of homes available for sale increasing by 20 percent from last October.<br/><br/>These inventories pose a downside risk for the housing market if demand were to pull back sharply.  The current situation is not alarming for new homes, however, as the structure of inventory is still healthy.  Over 20 percent of new homes for sale in October are units that have permits but have not yet been started -- a near record high share.  This could be either because banks are more reluctant to finance spec construction or because builders have exercised caution.  Regardless, this implies that builders could pull out a large portion of the increase in inventory if demand were to soften. <br/><br/>Home Price Appreciation<br/><br/>Home price gains moderated but are still at a double-digit rate.  The median price of total existing homes increased by 10.5 percent from a year ago in December -- slowing from 13.2 percent in November and 16.6 percent in October.  Condo price appreciation was slower than single-family homes' in December (10.3 percent versus 10.8 percent).  Since July, condo prices have appreciated more slowly than single-family prices, after four years of faster appreciation.<br/><br/>New home price appreciation has continued to be softer than that for existing homes.  The median price for new homes declined in December by 3.4 percent from a year ago.  For the year, the median sales price rose by 7.4 percent to $237,300 from $221,000.<br/><br/>Housing Market Projection<br/><br/>The housing market started its modest decline last fall and should continue to decline further in the first quarter of this year, according to several leading indicators of housing activity.  The purchase index average for January is about the same as December's, which is about 4 percent below November's average.  In addition, housing inventories have continued to increase.  With projected modest increases in mortgage rates through this year to about 6.5 percent by the end of the year, however, we expect home sales to decrease by about 4-5 percent in 2006 from the fifth consecutive record level in 2005.<br/><br/>Leading indicators for home building activity suggest that home building will likely trend down in the coming months.  After holding up better than expected in the previous two months following Hurricane Katrina, The National Association of Home Builders Housing Market Index -- a measure of builders' sentiment -- home builders' optimism dropped sharply in November and December to the lowest level since May 2003 and stabilized at that level in January.  We expect residential construction to decline modestly, about 5 percent in 2006, as reconstruction efforts should help support homebuilding activities in the Gulf region. <br/><br/>Rising inventories should cause existing home price gains to moderate from the strong pace of 2005 to a more sustainable pace of about 6.5 percent in 2006 -- about half the pace experienced last year.  New home prices should decelerate slightly from 7.4 percent in 2005 to about 5 percent this year.<br/><br/>Mortgage Market Projection<br/><br/>With only a modest projected decline in home sales this year and still-healthy home price appreciation, purchase originations should decline only modestly.  However, with mortgage rates rising, refi originations should drop off significantly.  We expect total originations to decline by about 20 percent from last year's level of $2.77 to $2.24 trillion, with refi originations declining by about 40 percent and purchase originations declining by 1.7 percent.<br/><br/><br/>Story from http://originatortimes.com<br/><br/><br/><br/>