New Home Sales Plunge 17% - Most In 4 Years

Discussion in 'Economics' started by ByLoSellHi, Feb 28, 2007.


    U.S. January New-Home Sales Plunge 16.6%, Most Since 1994

    By Courtney Schlisserman

    Feb. 28 (Bloomberg) --
    New-home sales in the U.S. fell last month by the most in 13 years, pointing to more weakness in the real-estate market that limited economic growth last year.

    The 16.6 percent decrease to an annual rate of 937,000 in January, less than any economist had forecast in a Bloomberg News survey, Commerce Department figures showed today. The pace of sales was the slowest since February 2003. A measure of housing inventory rose to the highest in three months.

    The figures show home construction will remain a drag on the economy even with lower borrowing costs and more incentives from builders. More cuts in home prices may be needed to stir buyer interest as builders keep reporting increased rates of canceled orders.

    ``It's consistent with more housing-related weakness through the first half of this year at least,'' Jim O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. ``Inventories of vacant homes have surged so much that construction is going to be weak for a while.''

    The January decrease in sales was the largest since a 23.8 percent plunge in January 1994. Economists forecast new home sales would fall 3.6 percent to a 1.08 million rate, from a previously reported 1.12 million for December, according to the median of 69 projections in a Bloomberg News survey. Estimates ranged from a 1 million pace to 1.16 million.

    Earlier today, the government reported the economy expanded at a 2.2 percent annual rate in the fourth quarter, revised down from the 3.5 percent pace estimated in its advance report last month. Home construction subtracted 1.16 percentage points from gross domestic product.

    Median Home Price

    The median price of a new home fell 2.1 percent in January, to $239,800 from $244,900 a year earlier. A report yesterday from S&P/Case-Shiller showed U.S. home prices rose 0.4 percent in the fourth quarter of 2006 compared with the same three months a year earlier, the smallest gain since the second quarter of 1993.

    Today's report showed the number of homes for sale at the end of the month fell to 536,000, from 537,000 in December. That left the supply of homes at the current sales rate at 6.8 months' worth, the highest since October, compared with 5.7 months.

    While builders are offering more incentives to unload homes already built, the actual number of homes in inventory may be more than the government reports because it doesn't include cancellations, economists said.

    ``The inventory situation is undoubtedly worse than reported,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a note to clients. ``Builders will probably have to continue to work off bloated stocks of finished homes for most of 2007.''

    Contract Cancellations

    Hovnanian Enterprises Inc., based in Red Bank, New Jersey, said yesterday that home contracts fell 23 percent and its order cancellation rate was 36 percent during its fiscal first quarter.

    Residential construction fell at an annual rate of 19.1 percent in the fourth quarter, the Commerce Department said earlier today. Homebuilding probably will subtract from growth this year as builders continue to limit construction this year to avoid another swell in inventories, economists said.

    Compared with a year earlier, new-home sales for January were 20 percent, the government said.

    Sales fell in all regions in January, led by a 37.4 percent slump in the West to an annual rate of 166,000, the lowest since March 1995. Purchases declined 18.7 percent in the Northeast to an annual rate of 61,000; fell 9.7 percent in the South to 529,000; and dropped 8.1 percent in the Midwest to 181,000.

    The National Association of Realtors reported yesterday sales of existing homes, which make up 85 percent of the housing market, rose 3 percent last month, more than economists forecast. Compared with a year earlier, sales were down 4.3 percent.

    Timely Barometer

    New-home sales are considered a more timely barometer of the housing market because they are recorded when a contract is signed. Most sales of existing homes are counted when a contract closes, usually a month or two later.

    Warmer-than-average weather in December helped to boost sales that month and may have had a similar effect on some regions of the country the beginning of last month, economists said. Builders are indicating it's too soon to say the housing market is completely out of the woods.

    ``There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,'' Toll Brothers Inc. Chief Executive Officer Robert Toll said in a statement on Feb. 22. ``Demand varies greatly from week to week in individual markets.''

    Toll Brothers

    Toll, the largest U.S. luxury-home builder, said profit fell 67 percent in the first quarter because of a drop in the value of the company's land. It also reduced its forecast for the number of homes it will sell this year.

    Federal Reserve Chairman Ben S. Bernanke and other central bank policy makers have forecast that the worst of the housing market slump is over, even as builders express caution.

    ``The U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,'' Bernanke told lawmakers Feb. 14 during his semi-annual monetary policy testimony.
  2. ooops.... biggest drop in 13 years. Not 4 years.
  3. jtmarlin


    funny i thought the market bottomed last month...
  4. and the month before, and the month before, and the month before... LOL

  5. Tick, Tick, tick, tick, tick, tick..........BOOOOOOOOM!!!

    what really gets me is that most of these 'pundits' (including CNBC's so called experts and anchors) are doing such a disservice to the public
  6. IMO, CNBC is a financial market promotional tool designed to suck in Joe Six-pack. You can literally make a living off of fading those fools.
  7. Ok, I cut out all the drivel. The builders book sales when they take a contract. The sensible builders are focusing on selling off old unsold completed houses ("finished houses") dimishing supply. Do "completed houses" count as "existing houses"? The number of houses actually sold nationwide increased. The number of existing houses sold increased from last month. The prices for homes increased nationwide over the last quarter. The central bank thinks the worst is over.

    So, the bottom line is that builders have sensibly scaled down their operations to lower carrying costs, thereby decreasing future supplies while sales and prices increased. Lending rates are more favorable than they have been for months.

    Its Armageddon. Run for the hills.

  8. Can't recall where I read this but it is the first time I seen in print an article using the phrase "Now that the real estate bubble has burst". This was over the weekend.
  9. What part of "new home sales fall 16.6%" is at issue?

    Your point has to do with builders ramping down speculative building of new units, which is irrelevant to the sales figure referenced.

  10. But the problem is joe sixpack may need to play it safe but instead is thinking about taking more equity out of his home because it looks like the market has bottomed...reckless and irresponsible...CNBC!
    #10     Feb 28, 2007