ST : Sales of new US homes plunge to new low

Jun 24, 2010

Sales of new US homes plunge to new low

WASHINGTON: Sales of new US homes dropped a record 32.7 per cent last month to the lowest level in at least four decades as the boost from a popular tax credit faded, adding to worries of a slowing economic recovery.

The Commerce Department said yesterday that single-family home sales tumbled to a 300,000-unit annual rate, the lowest level since the series started in 1963.

In addition, the April and March sales figures were revised down to 446,000 units and 389,000 units, respectively. The drop in sales last month unwound two months of gains, which had been inspired by a government tax credit for home buyers.

Prospective home owners had to sign contracts by April 30 to qualify for the tax credit. Analysts polled by Reuters had forecast new home sales sliding to a 410,000-unit pace. New home sales are measured at contract signing.

'The previous two months were revised down, so the lift from the tax credit was less than we previously realised. We are getting a little nervous,' said Mr David Sloan, an economist at 4Cast in New York.

US stocks fell after the report, with the Dow Jones Industrial Average down nearly 36 points, or 0.35 per cent, at 10,257.55 an hour into trading.

The report was the latest in a series to suggest that the economy's recovery from the worst downturn since the 1930s might be losing strength.

It also came as Federal Reserve policymakers gathered for a two-day meeting at which they were expected to extend their pledge to hold overnight interest rates ultra low for 'an extended period' to aid the still fragile economic recovery.

The United States central bank is not seen lifting rates, currently near zero, until next year. A report on Tuesday showed sales of previously owned homes, which are recorded at contract closing, fell unexpectedly last month.

'We see no chance of a quick, sustained recovery, though we are hopeful there is little further downside' Mr Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York, said in a note to clients. Mr Shepherdson had correctly forecast the drop in sales.

The expiry of the tax incentive also resulted in a decline in new home construction, and applications for loans to buy homes fell last week, staying near 13-year lows.

Last month's weak sales pace saw the supply of homes available for sale jumping a record 46.6 per cent to 8.5 months' worth, the highest in nearly a year, from 5.8 months' worth in April.

However, the number of new homes on the market dipped 0.5 per cent to 213,000 units, the lowest since November 1970.

REUTERS, BLOOMBERG