Saturday, November 27, 2010

Sales of New Homes in U.S. Unexpectedly Decreased in October

Sales of New Homes in U.S. Unexpectedly Decreased in October

Sales of new homes unexpectedly dropped in October, showing near record-low borrowing costs are failing to lift the industry that precipitated the recession.

Purchases decreased 8.1 percent to a 283,000 annual rate, figures from the Commerce Department showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected an increase to a 312,000 annual pace. Sales reached a 275,000 pace in August, the lowest since data collection began in 1963.

An overhang of distressed properties and an unemployment rate hovering near 10 percent may restrain sales of new homes into 2011. Concerns over faulty foreclosure proceedings threaten to further delay the mending process.

“Conditions in the housing market remain challenged,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “Lending conditions remain tight and there is concern that there’s another down leg in home prices.”

Other Commerce Department reports today showed consumer spending rose in October for a fifth month and orders for durable goods unexpectedly dropped.

Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated. Incomes climbed 0.5 percent and the Federal Reserve’s preferred measure of inflation was little changed, capping the smallest 12- month gain since records began five decades ago.

Durable Goods

Bookings for goods meant to last several years fell 3.3 percent after a revised 5 percent jump in September that was larger than previously estimated.

Figures from the Labor Department showed applications for unemployment benefits fell last week to the lowest level since July 2008, reinforcing evidence the labor market is healing. Jobless claims declined by 34,000 to 407,000 in the week ended Nov. 20. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000.

Also today, consumer sentiment in November climbed more than forecast. The Thomson Reuters/University of Michigan final reading for this month increased to 71.6, the highest since June, from 67.7 a month earlier. The preliminary November figure was 69.3.

Shares Climb

Stocks rose after the reports. The Standard & Poor’s 500 Index climbed 0.9 percent to 1,191.06 at 10:15 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10- year note up to 2.84 percent from 2.78 percent late yesterday.

Economists estimates for new-home sales ranged from 295,000 to 337,000.

The median price decreased 9.4 percent from October 2009 to $194,900, the lowest level since October 2003. The year-over-year drop was the biggest since July 2009.

Part of the drop in prices may be due to regional differences in sales.

Purchases fell in three of four regions, led by a 24 percent drop in the West, where the median price is usually higher. Purchases climbed 3.1 percent in the South, the area where prices are lowest.

Less Supply

The supply of homes at the current sales rate rose to 8.6 months’ worth from 7.9 months in September. There were 202,000 new houses on the market at the end of October, the fewest since June 1968.

Reports earlier this month showed the housing market is stuck near recession levels. Housing starts in October fell to a 519,000 annual rate, the fewest since a record low reached in April 2009, the Commerce Department said this month.

Sales of existing homes, which now make up more than 90 percent of the market, decreased by 2.2 percent to a 4.43 million rate in October, the National Association of Realtors said yesterday. The pace was still the third-lowest on record going back a decade.

Home resales are tabulated when a contract is closed, while new-home sales are counted at the time an agreement is signed, making them a leading indicator of demand.

Economists are debating the likely effect on new-home sales from the foreclosure moratoriums and regulators’ probes into faulty paperwork. Most agree the moratoria pose a risk to housing sales as a whole.

Fed’s View

“The moratoriums recently announced by some banks on the sale of properties they had seized in foreclosures were likely to damp home sales further in the near term,” the Federal Reserve said in minutes of its Nov. 2-3 meeting released yesterday. “Despite further declines in mortgage interest rates in recent months, other factors continued to restrain housing demand, including consumer pessimism about the outlook for jobs and income, the depressed rate of household formation, and tight underwriting standards for mortgages.”

D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects 2011 to be “challenging” for the industry as consumer confidence and employment remain weak, Chief Executive Officer Donald Tomnitz said on a Nov. 12 earnings conference call. The spring selling season, the strongest for builders, may fail to bring the traditional boost in demand, he said.

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