U.S. Economy: New-Home Sales Decline to Record Low
Feb. 24 (Bloomberg) -- Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.
Purchases declined 11 percent to an annual pace of 309,000, below the lowest forecast in a Bloomberg News survey of economists, figures from the Commerce Department showed today in Washington. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased.
The report underscores Federal Reserve Chairman Ben S. Bernanke’s comments today that the economy is in a “nascent” recovery still in need of low interest rates. Homebuilders face competition from foreclosed properties that have driven down prices at the same time companies are reluctant to create jobs.
“The foreclosure flow is robbing demand from the new-homes market, and that process seems to be strengthening,” said Julia Coronado, a senior economist at BNP Paribas in New York. “The new-homes market just can’t get off the floor. If new homes suffer, construction suffers and jobs suffer.”
Sales were projected to climb to a 354,000 annual pace from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 325,000 to 386,000.
Stocks advanced after Bernanke repeated in Congressional testimony that borrowing costs can remain low for an “extended period.” The Standard & Poor’s 500 Index gained 1 percent to 1,105.24 at 4:28 p.m. in New York.
Three Regions Drop
Three of the four U.S. regions showed declines in new-home sales last month, led by a 35 percent plunge in the Northeast. Purchases fell 12 percent in the West and 9.5 percent in the South. They rose 2.1 percent in the Midwest.
The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year.
The supply of homes at the current sales rate increased to 9.1 months’ worth, the highest since May 2009.
Housing, the industry that spawned the sub-prime mortgage meltdown and triggered the worst recession in seven decades, appeared to be recovering in 2009 after a three-year decline.
Purchases of new homes have declined from an all-time high of 1.39 million reached in July 2005. They have declined 6.1 percent from January 2009.
New-home purchases, which account for about 6 percent of the market, are considered a leading 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.
Rising Foreclosures
Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payments or sell, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.
The lack of jobs is another hurdle. Consumer confidence in February fell to its lowest level since April 2009 and a gauge of current conditions declined to the lowest level in 27 years on concerns about the labor market and the economy, the Conference Board reported yesterday.
Bernanke told Congress today that there are “tentative” signs of stabilization in the labor market, including fewer job cuts, a rise in factory employment and stronger demand for temporary help.
Job Market ‘Weak’
“Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” Bernanke said in testimony to the House Financial Services Committee.
Economists surveyed by Bloomberg at the beginning of this month forecast unemployment this year will average 9.8 percent, just a percentage point below the historic post-war peak of 10.8 percent reached in November 1982.
The end of Fed purchases of mortgage-backed securities, aimed at keeping borrowing costs low, represents another challenge for the housing industry. The program is scheduled to expire at the end of March.
“The housing market took several years to recover, following the downturn of the late 1980s and early 1990s,” Robert Toll, chief executive officer of Toll Brothers Inc., said in a statement today.
Toll Brothers, the largest U.S. luxury-home builder, said its first-quarter loss narrowed. The Horsham, Pennsylvania-based company’s new orders almost doubled in the three months ended Jan. 31 as the housing market showed signs of stabilizing.
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