The prospects for another US Federal Reserve interest rate cut have increased with the news that sales of existing homes in the US fell 8% last month to the lowest rate on record.
The Fed cut rates last month by half a per cent and the betting now is for a 0.25% cut after its two day meeting next week because the housing slump is slowly pushing US economy towards stalling point.
According to figures from the National Association of Realtors (a real estate agents industry group), sales of existing homes slowed to an annual rate of 5.04 million in September, compared with a revised 5.48 million annual rate in August.
Last month's numbers are the slowest annual pace of sales since the current measure – which includes multiple-family dwellings – began in 1999. It is also the steepest one-month and annual fall on record.
The news came as Merrill Lynch reported that it had under-estimated its losses from dodgy subprime mortgages and other securities, increasing its losses and provisions 50% to $8.8 billion.
That pushed Merrill's loss for the quarter out to$2US.3 billion, or $2.85 a share, compared to a forecast of 50c a share a week ago! Merrill reported a net profit of $US3 billion in the same quarter of 2006.
The bank's net revenue plunged 94% to just $US577 million,from $US9.8 billion in the same period of last year.
The Merrill news and the housing figures saw US Government securities again sought by nervy investors. The 10 year bond yield fell to 4.31% at one stage before bouncing to 4.35%.
Yields on two year bonds fell to their lowest level in two years, 3.69% before also rising to end around 3.71%.Wall Street fell sharply but then struggled back but still ended lower.
The US Government released new home sales figures tonight our time and these are not expected to be any better.
The realtors group said that the supply of homes on the market rose to its highest level in 12 years: that's 4.4 million homes, or a 10.5 month backlog.
The figures reported are lower than forecast by economists and indicate that the housing slump continues to deepen, something that showed up in the new home starts and permit figures for September issued last week.
As well as the sharp fall in the rate of sales, the median price of existing homes fell to $US211,700 in September, down 4.2% from September 2006.
Existing-home sales suffered more in the Western states of the US than any other region, dropping 9.9% from August and a huge 27.8% from last year.
The Realtors figures include single-family home sales as well as condos and other multi-family units.
Single-family homes the bulk of activity for agents still, showed a similar slump,down 8.6% to an annual rate of 4.38 million,the lowest level since early 1998.
It's bad news for the US economy. We could see US interest rates falling and ours here in Australia rising over the next fortnight.
That would see the Aussie dollar's value rise, adding pressure to corporate earnings, especially from our big international companies.
Brokers have already started downgrading companies on the basis of the higher Aussie dollar. There could be more to come.
