New-Home Sales Hit 7-Year Low
Data Suggest Falling Prices
May Persist Well Into 2008;
Jobs Report Tempers Fears
By SUDEEP REDDY
September 28, 2007
Despite huge discounts, sales of new homes last month slowed to their slowest pace in seven years, setting the stage for further price declines well into next year.
The housing market continues to cloud the economic outlook. A chief concern: The housing turmoil could damp spending by consumers, who already are showing signs of pulling back.
Still, the news was tempered somewhat by data showing that jobless claims fell last week. That indicated the labor market might be in better shape than was suggested by a report, released earlier this month, showing payrolls in August fell for the first time in four years.
In addition, the government reported that the nation's gross domestic product expanded at an annual rate of 3.8% in the April-to-June quarter, slightly less than the 4% estimated earlier. After-tax corporate profits rose 5.2% to $1.15 trillion. Many economists believe growth in the third quarter will slow to a rate of about 2%.
New-homes sales dropped 8.3% in August from July, to an annual pace of 795,000 homes, the Commerce Department said. Sales of homes priced above $500,000 were hit especially hard. Home buyers faced more restrictive terms for mortgages; rates also rose for jumbo loans, those over $417,000.
Meanwhile, KB Home, a Los Angeles home builder, reported a loss of $35.6 million, or 46 cents a share, for the quarter ended Aug. 31. That compared with a net profit of $153.2 million, or $1.90 a share, a year earlier.
"We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," said Jeffrey Mezger, KB Home's president and chief executive. He said lenders' tighter mortgage standards and buyers' heightened caution is restraining demand, while an oversupply of homes is pushing prices down. Earlier this week, Lennar Corp., another big home builder, posted larger-than-expected losses for the third quarter.
About 68,000 homes were sold last month, down from 74,000 in July, the government said. At the end of August, 531,000 homes were on the market -- and only about a third of them were finished. That means builders could be stuck with large inventories as the market weakens further.
"This is staggering," said Joseph Brusuelas, chief U.S. economist at IDEAglobal, a research firm that advises investors. Further big price declines, he said, are "going to be debilitating."
Only about 6,000 new homes priced at $500,000 or more were sold in August, down from 9,000 in each of the previous three months and 11,000 in August 2006.
Jobless claims dropped last week, despite expectations that a wave of layoffs in the mortgage sector would boost the figure. Initial claims for unemployment benefits fell 15,000 to 298,000, the second weekly decline and the lowest level since May, the Labor Department said. The four-week moving average fell by 9,750 to 311,500, the fourth straight drop.
The jobless report helps bolster forecasts that while the housing slump may brake growth, the economy "will not degenerate into a full-fledged recession," David Resler, chief economist at Nomura Securities, said in a note to clients.
Data Suggest Falling Prices
May Persist Well Into 2008;
Jobs Report Tempers Fears
By SUDEEP REDDY
September 28, 2007
Despite huge discounts, sales of new homes last month slowed to their slowest pace in seven years, setting the stage for further price declines well into next year.
The housing market continues to cloud the economic outlook. A chief concern: The housing turmoil could damp spending by consumers, who already are showing signs of pulling back.
Still, the news was tempered somewhat by data showing that jobless claims fell last week. That indicated the labor market might be in better shape than was suggested by a report, released earlier this month, showing payrolls in August fell for the first time in four years.
In addition, the government reported that the nation's gross domestic product expanded at an annual rate of 3.8% in the April-to-June quarter, slightly less than the 4% estimated earlier. After-tax corporate profits rose 5.2% to $1.15 trillion. Many economists believe growth in the third quarter will slow to a rate of about 2%.
New-homes sales dropped 8.3% in August from July, to an annual pace of 795,000 homes, the Commerce Department said. Sales of homes priced above $500,000 were hit especially hard. Home buyers faced more restrictive terms for mortgages; rates also rose for jumbo loans, those over $417,000.
Meanwhile, KB Home, a Los Angeles home builder, reported a loss of $35.6 million, or 46 cents a share, for the quarter ended Aug. 31. That compared with a net profit of $153.2 million, or $1.90 a share, a year earlier.
"We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," said Jeffrey Mezger, KB Home's president and chief executive. He said lenders' tighter mortgage standards and buyers' heightened caution is restraining demand, while an oversupply of homes is pushing prices down. Earlier this week, Lennar Corp., another big home builder, posted larger-than-expected losses for the third quarter.
About 68,000 homes were sold last month, down from 74,000 in July, the government said. At the end of August, 531,000 homes were on the market -- and only about a third of them were finished. That means builders could be stuck with large inventories as the market weakens further.
"This is staggering," said Joseph Brusuelas, chief U.S. economist at IDEAglobal, a research firm that advises investors. Further big price declines, he said, are "going to be debilitating."
Only about 6,000 new homes priced at $500,000 or more were sold in August, down from 9,000 in each of the previous three months and 11,000 in August 2006.
Jobless claims dropped last week, despite expectations that a wave of layoffs in the mortgage sector would boost the figure. Initial claims for unemployment benefits fell 15,000 to 298,000, the second weekly decline and the lowest level since May, the Labor Department said. The four-week moving average fell by 9,750 to 311,500, the fourth straight drop.
The jobless report helps bolster forecasts that while the housing slump may brake growth, the economy "will not degenerate into a full-fledged recession," David Resler, chief economist at Nomura Securities, said in a note to clients.
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