Originally posted on sciy.org by Ron Anastasia on Tue 29 Jan 2008 02:00 AM PST
U.S. Economy: New-Home Sales Drop to 12-Year Low (Update2)
By Shobhana Chandra
Jan. 28 (Bloomberg) -- Purchases of new homes in the U.S. unexpectedly fell to a 12-year low in December, ending the worst sales year since records began in 1963 and signaling little prospect for a recovery.
Sales decreased 4.7 percent to an annual pace of 604,000, the Commerce Department said today in Washington. The median price dropped 10 percent from December 2006, the most in 37 years.
The dollar extended its drop as the figures spurred speculation the Federal Reserve will keep reducing interest rates. The report may also reinforce concern that declining home prices and stricter lending will lead to more foreclosures and hurt consumer spending.
``Today's numbers are a new blow,'' said Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who forecast a decline to 613,000. ``The broader economy is very, very close to falling over the edge. The Fed really needs to think aggressively.''
Stocks climbed as investors bet the Fed will lower borrowing costs by half a percentage point this week to help the economy. The Standard & Poor's Supercomposite Homebuilding Index, which includes KB Home, Pulte Homes Inc. and D.R. Horton Inc., rose 3.7 percent to 349.84 at 3:09 p.m. in New York. The S&P 500 also increased.
Economists' Forecasts
Economists had forecast new home sales would be unchanged from an originally reported 647,000 rate the prior month, according to the median estimate in a Bloomberg survey of 62 economists. Forecasts ranged from 595,000 to 680,000.
The median price of a new home fell to $219,200 in December from $244,700 a year earlier, today's report showed. For all of 2007, the median price rose 0.2 percent to $246,900.
New-home purchases in December were the fewest since February 1995, and followed a 634,000 rate the prior month. For the year, sales dropped 26 percent, the most since records began in 1963.
``We are in deep recession lows now in terms of new home sales and housing starts,'' said Lincoln Anderson, chief economist at LPL Financial Services in Boston. ``We're seeing a bottoming, but it's a lot lower bottom than I expected.''
Even as builders reduced inventories, the drop failed to keep pace with the decline in sales, pushing up the month's supply. The number of homes for sale fell to a seasonally adjusted 495,000 in December, the fewest since October 2005. At the current sales pace, it would take 9.6 months to sell all those houses, the most in over two decades.
Sales by Region
Purchases dropped in three of four regions, led by a 6.5 percent decline in the South. The Northeast was the only region that registered a gain.
``With sales like this, that just encourages further cuts in housing starts,'' said Ethan Harris, chief economist at Lehman Brothers Holdings Inc. in New York. ``The economy is looking a lot worse. It leans the Fed certainly toward more rather than less rate cuts.''
The Fed on Jan. 22 cut the benchmark interest rate by three-quarters of a percentage point, its first emergency reduction since 2001, after global stock markets tumbled on increasing signs of recession.
Policy makers said ``incoming information indicates a deepening of the housing contraction'' and ``a weakening of the economic outlook,'' in announcing the decision.
The central bank will lower the rate target by another half point on Jan. 30, according to trading in fed funds figures.
Stimulus Plan
The government's economic stimulus plan last week also seeks to address the housing slump. The accord includes a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, to temporarily buy mortgages of as much as $729,750, exceeding the current $417,000 federal limit.
Sales of previously owned homes, which account for about 85 percent of the market, fell more than forecast in December, capping the biggest yearly slump in more than a generation, the National Association of Realtors said last week.
The median price of an existing single-family home dropped 1.8 percent in 2007, the first decline since records began four decades ago and probably the first since the Great Depression in the 1930's, the Realtors group said.
New-home purchases are considered a timelier indicator because they are based on contract signings, while existing home sales are calculated when a contract closes, usually a month or two later.
Annual Projections
Purchases of new houses will fall another 15 percent this year, according to a forecast by the Mortgage Bankers Association. Sales of existing homes will drop 13 percent, the group said on Jan. 14.
Housing-related firms continue to struggle with the fallout from the subprime mortgage crisis. Wachovia Corp., the fourth- largest U.S. bank, last week said profit plunged 98 percent to its lowest since 2001 after writedowns for bad loans and mortgage-backed securities.
``These are extremely difficult times for all homebuilders,'' Steven J. Hilton, chief executive officer of Meritage Homes Corp., said in a Jan. 17 statement. The homebuilder, whose biggest markets are Texas, Arizona and California, said fourth-quarter revenue from homes sold fell 25 percent as orders declined.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Last Updated: January 28, 2008 15:18 ESTAttachment:
