U.S. New-Home Sales Fell in August to 17-Year Low
By Bob Willis
Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets.
Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said today in Washington. The median sales price dropped to a four-year low.
A financial meltdown that prompted the government this week to ask Congress for $700 billion in emergency funding to buy up troubled bank assets may continue to clog the flow of credit to homebuyers and businesses. Shrinking credit availability threatens to extend the three-year housing slump and deepen the economic downturn.
‘‘The market is looking particularly depressing,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia, whose sales forecast was the closest. ‘‘Construction activity has to fall further than it has, as do prices,'' to reduce a glut of unsold homes.
Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000.
Stocks rose on speculation that Congress will reach agreement on the bailout package and help avert a long recession. The Standard & Poor's 500 index was up 1.9 percent to 1208.81 as of 10:08 a.m. in New York.
Durable Goods, Claims
Other reports today showed orders for durable goods in August dropped 4.5 percent and first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.
The median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004.
Sales of new homes were down 35 percent from August 2007, the Commerce report showed.
While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months.
While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.
Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday.
Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week.
New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed.
Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks.
‘‘Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said.
Stricter lending regulations and tumbling home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the third quarter will probably be the weakest since 1991, according to economists surveyed earlier this month.
‘‘The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions,'' Fed Chairman Ben S. Bernanke told a congressional hearing yesterday. ‘‘Stabilization of our financial system is an essential precondition for economic recovery.''