U.S. Economy: New-Home Sales Drop as End of Tax Credit Looms
Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.
Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast, according to Commerce Department figures issued today in Washington. Other data showed orders for durable goods climbed 1 percent in September, the fourth gain in the last six months.
Stocks fell as the home-sales report reinforced concerns a recovery from the worst recession since the 1930s may cool after programs such as the $8,000 tax credit and Federal Reserve purchases of mortgage-backed securities expire. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.
The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.
The Standard & Poor’s 500 Index declined 1.1 percent to 1,051.86 at 11:57 a.m. in New York, extending a global slump. The S&P Homebuilder Supercomposite Index, which includes companies such as Lennar Corp. and KB Home, dropped 4.2 percent to 243.63.
New-home sales were forecast to rise to a 440,000 annual rate, according to the median forecast of 75 economists in the Bloomberg survey. Estimates ranged from 412,000 to 460,000 after an initially reported 429,000 rate the prior month.
Possible Extension
Sales of new homes, which make up less than 10 percent of the market, are tabulated when a contract is signed. Purchases of existing homes, which account for the remainder, are counted when transactions close and thus reflect contracts signed a month or two earlier.
Contracts signed last month to buy a new house may not be able to close before the tax credit expires at the end of November. A proposal to extend the credit as part of an unemployment-benefits measure has significant support, Senate Majority Leader Harry Reid said today.
Previously owned homes in September sold at a 5.57 million pace, up a record 9.4 percent from the prior month, the National Association of Realtors reported last week. The level of sales was the highest in more than two years.
Lower Prices
The median price of a new house fell to $204,800, compared with $225,200 at the same time last year. The value was up 2.5 percent from the prior month, reflecting a plunge in the share of houses selling for less than $150,000, a category that often includes first-time buyers payday advance lender.
Sales fell 11 percent in the West and 10 percent in the South. Purchases in the Midwest jumped 34 percent and were unchanged in the Northeast.
Builders had 251,000 houses on the market last month, the fewest since November 1982. It would take 7.5 months to sell all homes at the current sales pace, the same as in August.
A report from the Commerce Department tomorrow may show the economy grew at a 3.2 percent annual pace last quarter, according to the median estimate of economists surveyed. It would be the first positive reading in more than a year and the strongest performance since the third quarter of 2007. Growth is forecast to slow to a 2.4 percent pace in the fourth quarter.
‘Temporary Factors’
“Much of the strength in the economy is due to temporary factors such as fiscal stimulus initiatives like the home- buyers credit,” said Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey.
Fed policy makers meeting next week are likely to repeat their commitment to keeping interest rates low for an “extended period.” The Fed last month decided to slow purchases of $1.25 trillion in mortgage-backed securities while extending the end-date of the program by three months, to March 31.
The gain in durable goods orders illustrates how manufacturers such as Caterpillar Inc. are benefiting from $2 trillion in global stimulus spending.
The 1 percent increase in bookings for goods meant to last several years matched the median estimate of economists surveyed by Bloomberg News and followed a 2.6 percent drop the prior month.
Better Forecast
Caterpillar, the world’s largest maker of bulldozers and excavators, issued a full-year profit forecast exceeding the highest prediction from analysts. Peoria, Illinois-based Caterpillar is considered a bellwether for its ties to construction and mining and its overseas presence.
“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement on Oct. 20. “We’ve already started planning for an upturn.”
Shipments for non-defense capital goods excluding aircraft, used in calculating gross domestic product, fell 0.2 percent in September. For the quarter, such shipments dropped at a 1.9 percent annual pace compared with a 14 percent plunge in the prior three months, indicating business investment stabilized after plunging over the past four quarters.