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Home Sales, Durable Goods Orders Sink
By Alister Bull

WASHINGTON (Reuters) - U.S. new home sales tumbled last month and durable goods orders were also much weaker than expected, according to government data on Wednesday, signaling the country's housing boom may finally be coming to an end.

April sales of new U.S. homes suffered their largest monthly drop in 10 years as rising mortgage rates cooled the housing market from the previous month's record high.

New U.S. home sales fell 11.8 percent to a seasonally adjusted annual rate of 1.093 million units from an upwardly revised record high of 1.239 million in March, the Commerce Department (news - web sites) said.

Analysts polled by Reuters were expecting sales to ease to a 1.200 million unit pace.

April's rate was the lowest level of new home sales since November in what is normally the peak season for real estate sales and the largest monthly drop since January 1994.

"I think we're finally getting some indication as to what the impact of rising mortgages rates is going to be. Housing is going to cool off a little bit," said Mark Vitner, an economist at Wachovia Securities.

The dollar softened on the housing numbers and U.S. government bonds continued the strong footing achieved after the Commerce Department said durable goods orders, big-ticket items meant to last at least three years, fell 2.9 percent.

PAYBACK

This was the largest decrease since a 6.0 percent fall in September 2002, but March's gain was revised up to a 5.7 percent from 5.0 percent gain and February's 3.9 percent advance had been strong as well.

Given this track record, analysts viewed the latest numbers as payback for previous strength that would resume.

"The upward trend in capital spending is very much in place and we need to think of April as more of a payback for some huge numbers in the previous two months than anything that's a start of a new trend," said Joseph Lavorgna, chief fixed income economist at Deutsche Bank Securities.

Wall Street, wary of the volatile nature of this data series, had forecast a 0.2 percent decline as industry took a breather in an otherwise powerful upturn.

This has brightened the outlook for the country's battered manufacturers after they suffered in the 2001 recession and lagged in the economy's recovery.

Prices on the benchmark 10-year Treasury note were up 11/32, lowering the yield to 4.68 percent from Tuesday's 4.72 percent.

The dollar nudged weaker against the euro to $1.2117 from $1.2104 shortly before the data, although by 10.45 a.m. EDT it had swung back to around $1.2092.

The drop in orders was fairly broad-based, with non-defense capital goods excluding aircraft -- a proxy for business spending -- down 3.5 percent, while orders outside the defense sector were 2.4 percent lower.

Orders for machinery fell 4.9 percent while computer and electronics registered a 4.1 percent decline. Defense-related capital goods orders posted a 10.9 percent drop and demand for military aircraft was down 5.8 percent.

"We have seen sizable durable goods strength in the previous two months. Presumably this was more of a pullback from the excessive strength rather than an indication of weakness in the factory sector," said Bob Lynch, a currency strategist at BNP Paribas.

MORTGAGES

In addition to new home sales, U.S. mortgage applications fell last week for a third straight week, as mortgage rates resumed an upswing, the Mortgage Bankers Association said.

Its seasonally adjusted market index, a measure of weekly mortgage activity, fell for the week ending May 21 by 3.3 percent to 632.4 from the previous week's 654.1.

Average 30-year mortgage rates, excluding fees, rose by 5 basis points to 6.26 percent. Last week's average 30-year rates were up 112 basis points from the comparable week a year ago.

The 30-year mortgage rate has averaged at least 6 percent for five weeks in a row, equaling the span set from the last week of July to the last week of August 2003.

(Additional reporting by Mark Felsenthal in Washington and Richard Leong in New York)

http://story.news.yahoo.com/fc?cid=34&tmpl=fc&in=Business&cat=Real_Estate_and_Housing