U.S. New-Home Sales Drop, Prices Fall Most Since 1970
By Joe Richter
Sept. 27 (Bloomberg) -- Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, pointing to a worsening housing recession that spells more cutbacks in construction.
Purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, from a revised 867,000 rate in July, the Commerce Department said today in Washington. The median price dropped 7.5 percent from August 2006.
The outlook for residential real estate has dimmed since borrowing costs jumped and credit restrictions increased last month on concern over subprime mortgage defaults. The drop in sales underlines concerns among Federal Reserve officials that the housing contraction may deepen and slow the economy.
``The bottom is probably two or three quarters away yet for housing,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, which forecast a decline to 790,000 units. ``It seems like the credit restrictions did hit much harder than people expected.''
Economists forecast sales would fall to an 825,000 pace from a previously reported 870,000 in July, based on the median estimate of 72 forecasts in a Bloomberg News survey. Predictions ranged from 730,000 to 870,000. Compared with a year earlier, purchases were down 21 percent.
GDP Revision
The economy grew in the second quarter at a revised 3.8 percent annual pace, the most in more than a year, a separate Commerce report today showed. The gain compares with a previous estimate of 4 percent and a 0.6 percent increase in the first three months of the year. The figures didn't reflect last month's credit-market turmoil which heightened concern the expansion might be cut short.
The number of workers filing first-time jobless claims unexpectedly fell last week to a four-month low of 298,000, a report from the Labor Department also showed. The decline may help allay concerns about a weakening labor market.
U.S. Treasury securities were little changed following the reports and stock prices held gains. The yield on the benchmark 10-year note was 4.60 at 10:07 a.m. in New York, compared with 4.62 percent late yesterday.
The number of homes for sale at the end of the month fell 1.5 percent to 529,000 in August. With sales dropping more than five times as much, the inventory of unsold homes jumped to 8.2 months at the current sales pace.
The number of properties completed and waiting to be sold rose by 2,000 to 180,000.
Regional Breakdown
Sales fell in two of four regions. The decline was led by a 21 percent slump in the West and a 15 percent drop in the South. Purchases increased 42 percent in the Northeast and 21 percent in the Midwest.
Other housing reports already showed the market had weakened. Sales of previously owned homes fell in August to a five-year low, the National Association of Realtors said earlier this week.
Existing homes account for about 85 percent of the market and new homes make up the rest. New-home purchases are calculated based on contract signings rather than closings and are considered a more timely indicator.
A jump in defaults among subprime borrowers, or those with little or poor credit histories, had led to stricter lending requirements and made it tougher for Americans to borrow.
Waning demand and a rise in cancellations has caused builders to lose confidence and scale back projects. An index of builder sentiment this month matched a record low.
Companies including Red Bank, New Jersey-based Hovnanian Enterprises Inc. have increased incentives to work down inventories that swelled as sales slowed.
`Downward Pressure'
``We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins, Jeffrey Mezger, chief executive officer of Los Angeles-based KB Home, said today in a statement. ``The oversupply of unsold new and resale homes and downward pressure on new-home values has worsened in many of our markets.''
KB Home today reported a third-quarter loss on lower sales and $690 million in expenses to write down real estate.
Price declines have raised concerns that consumer spending will slow as fewer Americans apply for home-equity loans.
Masco Corp., the Taylor, Michigan-based maker of Behr paint and Delta faucets, last week cut its full-year earnings forecast because of the housing recession.
The Fed on Sept. 18 lowered its benchmark interest rate for the first time in four years. ``The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally,'' policy makers said in announcing their decision.
The economy will grow 2 percent this year, the least since 2002, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Consumer spending will probably grow at a 2.25 percent average annual pace in the second half of 2007, compared with a 2.55 percent rate from January through June, the survey also showed. Quarterly gains averaged 3.7 percent in the last decade.
Sept. 27 (Bloomberg) -- Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, pointing to a worsening housing recession that spells more cutbacks in construction.
Purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, from a revised 867,000 rate in July, the Commerce Department said today in Washington. The median price dropped 7.5 percent from August 2006.
The outlook for residential real estate has dimmed since borrowing costs jumped and credit restrictions increased last month on concern over subprime mortgage defaults. The drop in sales underlines concerns among Federal Reserve officials that the housing contraction may deepen and slow the economy.
``The bottom is probably two or three quarters away yet for housing,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, which forecast a decline to 790,000 units. ``It seems like the credit restrictions did hit much harder than people expected.''
Economists forecast sales would fall to an 825,000 pace from a previously reported 870,000 in July, based on the median estimate of 72 forecasts in a Bloomberg News survey. Predictions ranged from 730,000 to 870,000. Compared with a year earlier, purchases were down 21 percent.
GDP Revision
The economy grew in the second quarter at a revised 3.8 percent annual pace, the most in more than a year, a separate Commerce report today showed. The gain compares with a previous estimate of 4 percent and a 0.6 percent increase in the first three months of the year. The figures didn't reflect last month's credit-market turmoil which heightened concern the expansion might be cut short.
The number of workers filing first-time jobless claims unexpectedly fell last week to a four-month low of 298,000, a report from the Labor Department also showed. The decline may help allay concerns about a weakening labor market.
U.S. Treasury securities were little changed following the reports and stock prices held gains. The yield on the benchmark 10-year note was 4.60 at 10:07 a.m. in New York, compared with 4.62 percent late yesterday.
The number of homes for sale at the end of the month fell 1.5 percent to 529,000 in August. With sales dropping more than five times as much, the inventory of unsold homes jumped to 8.2 months at the current sales pace.
The number of properties completed and waiting to be sold rose by 2,000 to 180,000.
Regional Breakdown
Sales fell in two of four regions. The decline was led by a 21 percent slump in the West and a 15 percent drop in the South. Purchases increased 42 percent in the Northeast and 21 percent in the Midwest.
Other housing reports already showed the market had weakened. Sales of previously owned homes fell in August to a five-year low, the National Association of Realtors said earlier this week.
Existing homes account for about 85 percent of the market and new homes make up the rest. New-home purchases are calculated based on contract signings rather than closings and are considered a more timely indicator.
A jump in defaults among subprime borrowers, or those with little or poor credit histories, had led to stricter lending requirements and made it tougher for Americans to borrow.
Waning demand and a rise in cancellations has caused builders to lose confidence and scale back projects. An index of builder sentiment this month matched a record low.
Companies including Red Bank, New Jersey-based Hovnanian Enterprises Inc. have increased incentives to work down inventories that swelled as sales slowed.
`Downward Pressure'
``We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins, Jeffrey Mezger, chief executive officer of Los Angeles-based KB Home, said today in a statement. ``The oversupply of unsold new and resale homes and downward pressure on new-home values has worsened in many of our markets.''
KB Home today reported a third-quarter loss on lower sales and $690 million in expenses to write down real estate.
Price declines have raised concerns that consumer spending will slow as fewer Americans apply for home-equity loans.
Masco Corp., the Taylor, Michigan-based maker of Behr paint and Delta faucets, last week cut its full-year earnings forecast because of the housing recession.
The Fed on Sept. 18 lowered its benchmark interest rate for the first time in four years. ``The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally,'' policy makers said in announcing their decision.
The economy will grow 2 percent this year, the least since 2002, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Consumer spending will probably grow at a 2.25 percent average annual pace in the second half of 2007, compared with a 2.55 percent rate from January through June, the survey also showed. Quarterly gains averaged 3.7 percent in the last decade.
