US new-home sales slide 6.6%

Sales of new homes in the US fell by the most this year last month in a sign of continued weakness in the housing market. Purchases fell 6.6 per cent to an annual rate of 834,000 in June, according to the Commerce Department, which also said 22,000 fewer homes were sold in May than previously thought.

The surprisingly weak sales last month suggest the worst US housing slump in sixteen years is not over and may continue to act as a drag on economic growth, economists said.

Alan Ruskin, an analyst at RBS, said: ”The data then adds to ongoing concerns about the housing sector, and for now both existing and new home sales are providing a very consistent picture of weakness, and a clear sense that no bottom has been reached.”

Inventories of unsold new homes climbed 0.4 per cent to a level that would take 8 months to clear at the current rate of sales, suggesting housebuilders may need to limit activity and cut prices or increase incentives for buyers.

Housing construction companies have been taking a beating in the US this year as rising defaults on subprime mortgages encouraged tighter lender standards and, more recently, as interest rates on loans have risen, both deterring potential buyers.

Donald Horton, chairman of DR Horton, commenting on his company’s results on Thursday, said: ”Market conditions in the homebuilding industry continue to be challenging as inventory levels of both new and existing homes remain at historically high levels,” said.

”Increased use of sales incentives continues to put pressure on profit margins,” he added.

The company reported a loss for the current quarter as sales plunged and revenues fell by 29 per cent to $2.55bn.

A separate report by the Commerce Department showed an unexpected decline in orders for durable goods, excluding demand for Boeing aircraft.

Orders for durable goods excluding transportation equipment dropped 0.5 percent in June, the biggest fall since February.

Brian Bethune, an economist at Global Insight, said: ”While the core orders numbers for June look, prima facie, to be a little weak, the shipments results for the quarter still look excellent,” adding: ”As a result, real equipment and software investment is still on track to rise by nearly 4 per cent in the second quarter.”

”While the performance of domestic industries is increasingly dispersed, overseas demand continues to be stellar, driving top and bottom line earnings higher for companies that have a global footprint,” he said.


US new-home sales slide 6.6%

Financial Times
7/26/2007 11:36:25 AM