New Home Sales Rose 3.3 Percent to 526,000
May 27 2008 - New-home sales in the U.S. unexpectedly rose in April after readings for the prior month were revised down, signaling a worsening housing slump is still a threat to the economy.
Sales increased 3.3 percent to an annual pace of 526,000 from a 509,000 rate the prior month that was the lowest in 17 years, the Commerce Department said today in Washington. A separate report today showed home prices dropped in the first quarter by the most in at least 20 years.
Concern about declining home values and stricter loan rules are limiting demand and foreclosures are throwing even more properties on the market. Federal Reserve policy makers view the prospect of larger decreases in house prices and the effect that would have on financial institutions as a “key source” of risk to growth.
“Housing weakness is far from over,” said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, who correctly forecast the pace of sales. “We won’t find a bottom in prices until the end of next year. Builders are being very aggressive, but there is still a big correction ahead of us.”
A separate report today showed confidence among American consumers fell to the lowest level since October 1992 this month, raising the risk that households will rein in spending. The Conference Board’s confidence index declined more than forecast to 57.2.
Economists’ Forecasts
Economists forecast new home sales would drop to a 520,000 annual pace from an originally reported 526,000 rate the prior month, according to the median estimate in a Bloomberg survey of 70 economists. Forecasts ranged from 500,000 to 570,000.
Purchases in April were the second lowest since October 1991. The March reading became the weakest since April 1991.
The median sales price last month increased 1.5 percent from April 2007 to $246,100. The figures can be influenced by changes in the mix of sales at the regional level. For that reason, economists prefer price measures that track the same house over time.
One such gauge is the S&P/Case-Shiller index. Those figures, also reported today, showed house prices dropped 14.1 in the first quarter compared with the same period in 2007, the biggest decline since records began in 1988.
Sales of new homes were down 42 percent from April 2007, the biggest year-over-year decline since September 1981, the Commerce report showed.
Drop in Inventories
One bright spot is that inventories decreased. The supply of homes at the current sales rate dropped to 10.6 months’ worth from 11.1 months in March. The number of homes completed and waiting to be sold decreased to 181,000, the fewest since July.
Purchases rose in three of four regions, led by a 42 percent jump in the Northeast. They increased 8.3 percent in the West and 5.8 percent in the Midwest. Purchases dropped 2.4 percent in the South.
Sales of previously owned homes, which account for about 85 percent of the market, fell 1 percent in April, and the supply of unsold properties reached a record, the National Association of Realtors said last week.
New-home purchases, which make up the remaining 15 percent of the market, are considered a timelier indicator because they are based on contract signings. Resales are calculated when a contract closes, usually a month or two later.
Federal Reserve Outlook
The housing downturn and strains on the consumer led Fed policy makers last month to cut their 2008 growth estimate by almost 1 percentage point.
“The outlook for the housing market remained bleak,” according to minutes of the Fed’s April meeting, released May 21. “The possibility that house prices could decline by more than anticipated, and that the effects of such a decline could be amplified through their impact on financial institutions and financial markets, remained a key source of downside risk to participants’ projections for economic growth.”
Foreclosure filings were up 65 percent in April from a year earlier, according to RealtyTrac Inc., an Irvine, California-based seller of default data.
Weak demand will cause builders to keep pulling back. Declines in residential construction have subtracted from economic growth since the first three months of 2006. Work began in April on the fewest single-family homes in 17 years, Commerce reported earlier this month.
Housing-related companies are hurting. Wolseley Plc, the world’s biggest distributor of plumbing and heating equipment, reported a 30 percent drop in nine-month profit. The Reading, England-based firm, which gets half its sales from North America, said it may cut more jobs to lower costs.
“We continue to expect the U.S. housing market to get slightly worse before it gets better,” Stephen Webster, the company’s finance director, said in a conference call with journalists last week. “We would like to see a few months of stable housing starts or increasing housing starts before we call the bottom.”
New-Home Sales in the U.S. Rose 3.3% to 526,000 Pace
by Shobhana Chandra | Bloomberg