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Friday, December 25, 2009

US home sales remain weak

BOSTON: The unexpected sharp drop in new home sales in the United States last month, coupled with rising mortgage delinquency rates, illustrates the delicacy of the current economic recovery after a brutal downturn.

The bursting of the housing bubble, which had been inflated by a lax credit environment, set off the worst US recession since the Great Depression of the 1930s.

While the economy shows signs of bottoming out, the surprise 11.3% drop in new home sales in November suggested Americans were still treading cautiously around major purchases, with recovery still tied to government money, analysts and investors said on Wednesday.

“Many people are looking at the rally in the stock market as a typical V-shaped recovery, that what worked before is going to work again,” said Keith Springer, president of Capital Financial Advisory Services, a money manager in Sacramento, California.

“They are not taking into account the demographic cycle that is changing. The biggest thing going on is you have an aging demographic turning from net spenders to net savers.”

Retirement-age Americans, many of whom have seen the value of their savings decimated by the drop in stock and house prices, are selling the large homes they raised their families in and buying smaller, more affordable dwellings.

By Reuters

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