Not much joy from the latest new home sales figures in the US but Wall Street shrugged off the news to send the major stock market indices sharply higher into record territory.New home sales improved a touch in March compared to the depressed levels of February, but were still way short of being enough to reverse the continuing weakness.The news added to the depressed outlook for the sector after sales of existing homes fell in March, according to figures released a day earlier. (See below)
March’s new homes sales reached an annual rate of858,000 homes,up from the 836,000 rate in February, which was revised lower.
But the March rate was 23 per cent lower than March 2006 and was the second weakest since September 2001, behind the low February figure, according to the report from the US Census Bureau.
The Dow industrials topped 13,000, closing up 136 to 13,089, ignoring the housing news and taking heart from a strong report on durable goods orders, solid earnings, some corporate activity and the Fed’s latest look at the economy which showed only moderate activity and mostly stable prices.
The broader S&P 500 up 15 to 1,495 a new six-year high and the NASDAQ ended up 23 to 2,547to also finish at a six-year high.
The Fed’sOpen Market Committee is scheduled to meet on May 9 to look at interest rates.
The stockpile of unsold new homes was little changed, creeping up by 1,000 to a seasonally adjusted 545,000. That is equal to an eight-month supply of new homes for sale at the current level of demand.(there’s a seven month supply of existing homes overhanging the market as well).
Analysts say there will have to be even deeper price cuts and more incentives to get sales moving and they are saying there will be no sign of a meaningful recovery for at least a year, or more.
The median price for a new home sold in March was $US254,000, up 6.3 per cent from a year earlier. But industry commentators said that was boosted by sales incentives to keep sales moving: the true cost of the house is significantly lower once these incentives are stripped out.
The report noted that home builders were already feeling the impact from the subprime mortgage crisis with lower demand from some buying groups and financiers showing much tougher lending standards.
A separate report showed the other side of the subprime mortgage crisis with foreclosure filings rising 27 per cent in the first quarter compared with the fourth quarter of 2006 and 35 per cent from the first quarter of 2006.
There’s obviously more pain to come for a lot of people, companies and others in and around the US housing industry before things improve, but financial markets seem to have ridden it out.
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While the new home sector gets many of the headlines because it is an important multiplier impact on the construction materials, metals, property and financial sectors, the existing home sales sector is around 85 per cent of the huge US housing market and as such it’s the best indicator of how the overall industry is travelling.
Yesterday we learned that it’s still in a trough as home sales registered the sharpest fall in 18 years in March.
According to real estate agents groups and analysts the culprit was the bust in confidence and home sales which started around a year ago, overlaid by the emergence of those problems in the subprime mortgage sector which pushed sales below what economists had been expecting.
In fact from the commentary, the performance of the sector came as a surprise to many.
America’s National Association of Realtors said that sales of existing homes fell 8.4 per cent to an annual rate of 6.12 million in March from February’s 6.68 million rate.
It was the biggest one-month drop since January 1989.
While real estate agents industry groups said the poor weather in February and March may have had an impact, the impact of the so-called flight to quality seems to be showing up. That’s where lenders tighten their criteria for home loans to only lend to the people with sound records.
That has cut home loans to people with lower or very poor credit histories who were qualifying for so-called subprime, Alt-A or jumbo mortgages. These were the growth areas in US home lending over the past three years.
It was the weakest sales rate for almost three years with sharp drops in sales in every region of the country, according to the Realtors group.
That weakness in sales came despite another slide in home prices, which, according to real estate agents, had been tempting people back into the market.
That didn’t show up in the figures and the median home price of an existing US home eased 0.3 per cent to $US217,000 from March 2006. It was the eighth month in a row that that measure has fallen.
Earlier this month the Realtors Association had forecast that this year would be the first year to show a fall in house prices in the nearly 40 years that it has tracked prices.
Economists say that it would appear from confidence figures, released at the same time, that the housing problems are not going down well with consumers who are being spooked by the continued bad news about home sales and prices, as well as problems in subprime mortgages.
The woes in US housing were mentioned in the commentary to the Conference Board’s latest monthly look at consumer confidence which weakened in April.
US consumer confidence dropped to 104 index points in April from 108.2 points in March in what is the lowest reading since last August when high petrol prices hit confidence levels.
Economists highlighted the Conference Board’s question asking if consumers intend to buy a home in the next six months. Only 2.7 per cent said they were saying they are looking to buy at the moment, which was down sharply from the 3.4 per cent who were looking to buy two months earlier.
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