New-Home Sales Show Market Still In A Slump
Sales of new homes and durable goods fell in February, underlining the continued weakness of the housing market and manufacturers' growing concerns about the economy.

The two gloomy government reports sent U.S. stocks down yesterday. The Dow Jones industrial average lost 109.74 points, or 0.88 percent, to close at 12,422.86. The Standard & Poor's 500-stock index, a broader measure, lost 11.86, to close at 1341.13. The tech-heavy Nasdaq composite index lost 16.69 points, to close at 2324.36.

The Commerce Department reported yesterday that sales of new single-family houses declined to a seasonally adjusted annual rate of 590,000 in February, compared with 601,000 in January and 840,000 in February 2007. It was the lowest sales rate since 1995.

The decline conflicted with a report from the National Association of Realtors on Monday that existing-home sales had increased 3 percent during the same period. While some analysts dismissed the discrepancy as a difference in how the figures are reported, others said it may also reflect that builders have not lowered their prices enough to begin attracting bargain hunters.

"The builders who are willing to discount quickly enough are the ones that are finding buyers. That is what is going to be driving this market," said Mike Larson, a housing analyst with Weiss Research in Jupiter, Fla.
The median price of new houses in February was $244,100, compared with $225,600 in January. It was down 2 percent from February 2007, when the median price was $250,800.

There was a 9.8-month inventory of unsold new homes in February, the same as in January and up from 8.1 months in February 2007. A six-month inventory is considered healthy.

The current inventory level is the highest in more than 20 years and means prices will continue to decline before the market stabilizes, Larson said. "You are still dealing with a new-homes market that has a lot of supply relative to demand," he said.

However, one industry economist found some hope in the report. While the market continues to be disappointing, the rate at which sales are declining has slowed, said David Seiders, chief economist for the National Association of Home Builders. "The declines this year, these are still sizable declines, but compared to what we were seeing last year, it is less astounding," Seiders said.

The market for new homes, down 58 percent from its peak in July 2005, could begin to stabilize before the end of the year, he predicted. "That assumes the economy doesn't fall apart."

Also worrying investors were indications that manufacturers, concerned about the potential for a recession, were holding back on purchases, analysts said.

Orders for durable goods fell for the second consecutive month in February, down 1.7 percent to a seasonally adjusted $210.6 billion. Sales of large-scale manufacturing machinery -- usually a stable indicator -- experienced the largest decrease, down 13.3 percent, to $27.1 billion. That was the largest drop on record as manufacturers steered away from making significant investments, analysts said.

The data suggest that the manufacturing sector is likely to get worse before stabilizing, said Joseph Brusuelas, chief U.S. economist at IdeaGlobal research firm. "It is a good example of the fear out there in the corporate sector that the economy is going to fall into a deeper recession, a fear that corporate profits are going to dry up," he said.

Meanwhile, the price of crude oil leapt more than $4 a barrel yesterday to $105.90 on the New York Mercantile Exchange after a government report showed that fuel inventories were lower than expected.

Source: The Washington Post, March 27, 2008