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Economist: Plunge in New Home Sales Shows Housing Market Headed for Double Dip

Wednesday, 24 Mar 2010 11:39 AM

 

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Sales of new homes fell unexpectedly to their lowest point on record in February, in part because stormy winter weather kept buyers away.

The results pointed to the housing industry's struggle to rebound from the worst slump in decades.

Sales fell 2.2 percent last month to a seasonally adjusted annual sales pace of 308,000, the Commerce Department said Wednesday. The news follows a report Tuesday that sales of existing homes fell for a third straight month in February, to the lowest level since July.

The results "provide yet more evidence that the housing market is heading for a double-dip in both activity and prices, if it isn't there already," wrote Paul Dales, U.S. economist with Capital Economics.

The drop in new-home sales was the fourth consecutive monthly decline and the worst showing on records dating to 1963. January's results, meanwhile, were revised upward slightly to a pace of 315,000.

Economists surveyed by Thomson Reuters had expected new-home sales in February to rise to an annual rate of 320,000.

"While bad weather could well have suppressed the February result, it was dismal no matter how one tries to slice and dice it," wrote Joshua Shapiro, chief U.S. economist at MFR Inc.

As the housing market sputters, manufacturing remains a source of strength for the economic recovery.

Orders for big-ticket manufactured goods rose for a third straight month in February, bolstered by demand for commercial aircraft and machinery. The Commerce Department said Wednesday that orders for durable goods rose 0.5 percent last month.

The increase was led by another surge in demand for commercial aircraft — an increase of 32.7 percent that followed a 134.9 percent rise in this volatile category in January. Excluding transportation, orders posted a 0.9 percent increase, much better than the 0.6 percent decline in January.

In its report on new homes, the Commerce Department said sales plummeted in parts of the country that were hit by bad weather. In the Northeast, they fell 20 percent from a month earlier. Midwestern sales fell 18 percent. Sales fell nearly 5 percent in the South but rose 21 percent in the West.

The sales report reflects signed contracts to buy homes rather than completed sales. It allows economists to assess how many buyers were out shopping for new homes in a given month.

The number of new homes up for sale in February rose slightly to 236,000. At the current sales pace, it would take more than nine months to exhaust that supply.

There was some positive news for builders: The median sales price climbed on both a monthly and yearly basis. It rose to $220,500, up more than 5 percent from a year earlier and up about 6 percent from January.

Home sales have been sluggish during the winter even though the deadline for a tax credit for first-time home buyers was extended. It had been set to expire on Nov. 30. The earlier deadline caused sales to surge last fall.

Congress extended the deadline until April 30 and expanded it to cover existing homeowners who move. But economists, builders and real estate agents say the extension has not had much of an impact on sales.

That also was reflected Tuesday when the National Association of Realtors said sales of previously occupied homes dropped 0.6 percent in February to a seasonally adjusted annual rate of 5.02 million.

David Crowe, chief economist at the National Association of Home Builders, still forecasts that home sales this year will rise 25 percent from last year and is hopeful that an economic turnaround will boost sales.

"Those that still have a job will feel comfortable that they are going to keep their job once we see positive employment growth," he said. that will soften the hesitancy that we're seeing right now."

And some homebuilders already say their outlook is getting better, but the recovery is not a strong one.

Lennar Corp. said Wednesday that its fiscal first-quarter loss narrowed as the homebuilder offered fewer sales incentives and trimmed costs.

The company also said the housing market is stabilizing, as evidenced by improved traffic and lower cancellation rates during the quarter. The company, based in Miami, said it's on track to post a profit for fiscal 2010.

Earlier in the week, another big builder, KB Home, reported a $55 million quarterly loss but also said it is on track to return to profitability this year.

"A number of housing markets may be stabilizing or starting to rebound, though we do not yet see, in many respects, a sustained nationwide recovery," said Jeffrey Mezger, the company's CEO.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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