New Home Sales, Durable Goods Orders Fall

MBA (2/28/2008 ) Velz, Orawin
New homes sales decreased 2.8 percent in January to a seasonally-adjusted annualized pace of 588,000, following a 3.9 percent drop in December and 13.1 percent plunge in November. The January pace is the slowest since February 1995.
New home sales were 33.9 percent lower than sales a year ago and 57.7 percent below their recent peak in July 2005. The Census Bureau/HUD revised up sales in December by 1,000 but revised down the previous three months by 3,000. Sales declined in three regions: the Northeast (10.3 percent); the Midwest (7.6 percent) and the South (2.4 percent). The West was the only region that saw an increase (2.2 percent).

The number of homes available for sale dropped 2.2 percent to 482,000. This is the 10th consecutive month of decline to the lowest level since August 2005. Despite the drop in inventory, the months’ supply (or the inventory-sales ratio) rose to 9.9 months from 9.5 months in December and from 7.2 months a year ago. This is the highest months’ supply since October 1981.

The reason that the inventory-sales ratio has not improved despite the steady cutback in housing starts over the past two years is because housing demand has fallen faster than the drop in new construction. Tighter lending standards for all types of mortgage loans, including prime loans, have reduced the number of qualified homebuyers. In addition, some qualified potential homebuyers are reluctant to buy in declining home price environments.

Elevated month’s supply continues to put downward pressure on home prices. The median price for new homes fell 15.1 percent in January from a year ago, the biggest year-over-year decline since the series’ inception in 1963.

Another reported raised concerns that business investment may be weak, failing to support economic growth in the near term as the housing market continues to drag on growth. New orders for manufactured durable goods declined 5.3 percent in January following a 4.4 percent increase in December. The 30.5 percent drop in nondefense aircraft orders to the lowest level since August 2006 and a 32.6 percent drop in military aircraft orders led the decline.

Nondefense capital goods orders excluding aircraft—a proxy for future business investment—fell 1.7 percent in January. This represented the biggest drop since October 2007, following a 5.2 percent jump in December. Shipments for nondefense capital goods excluding aircraft—a component used in the calculation of economic growth in the current quarter—rose by 0.1 percent, after increasing 1.7 percent in December.

The report confirms Fed Chairman Ben Bernanke’s view in his testimony before the House Committee on Financial Services yesterday. Bernanke said recent data indicate subdued investment in equipment and software during the first half of this year.

Bernanke acknowledged that economic activity has become “distinctly less favorable” since last July. He argued that downside risks to growth remain and added that Fed will act in a “timely manner as needed” to support growth and ensure against downside risks. On inflation, he attributed the recent acceleration in consumer prices to a steep increase in oil prices, a weak dollar and an increase in food prices. He noted that the Fed expects inflation to moderate significantly later on as energy and food prices flatten out. Taken together with the speech by Fed Vice Chairman Donald Kohn on Tuesday, Bernanke’s testimony suggested that downside risks to economic growth remain a primary concern, leaving the door open to further rate cuts.

Long-term yields changed little. The yield on 10-year Treasury notes hovered around 3.85 percent by mid-Wednesday afternoon.