U.S. Economy: Home Sales Slide More Than Forecast

U.S. Economy: Home Sales Slide More Than Forecast (Update2)

By Joe Richter and Courtney Schlisserman

Nov. 28 (Bloomberg) -- Sales of previously owned U.S. homes fell more than forecast in October and orders for cars, planes and other durable goods dropped for a third month, the longest slump in 3 1/2 years.

The figures came as Federal Reserve Vice Chairman Donald Kohn signaled he's open to lowering interest rates again given ``the degree of deterioration'' in financial markets. Stocks rose as Kohn's remarks cemented forecasts for a rate cut next month to help keep the economy from sliding into recession.

Falling ``consumer confidence and the slowing in capital- goods orders does bring us closer to recession,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``I take Kohn's remarks as a good sign that the Fed is looking at the credit market issues, as well as the economic data, and deciding to react.''

Purchases of existing homes dropped 1.2 percent to an annual rate of 4.97 million, the fewest since the National Association of Realtors began keeping the records in 1999. Orders for items made to last several years fell 0.4 percent, the Commerce Department said today in Washington.

The Standard & Poor's 500 stock index gained 2.1 percent to 1,458 at 12:22 p.m. in New York. Federal funds futures indicated a 100 percent chance policy makers will lower borrowing costs for a third straight meeting on Dec. 11.

Home resales were forecast to fall 0.8 percent to an annual rate of 5 million from a previously reported 5.04 million pace in September, according to the median estimate of 70 economists in a Bloomberg News survey. Forecasts ranged from 4.7 million to 5.2 million.

Threat to Spending

Defaults on subprime mortgages have prompted banks to tighten lending standards, while foreclosures add to a glut of unsold properties that's putting pressure on home prices. Lower property values raise the risk that consumers will curtail spending, making businesses more cautious about investing and compounding a slowdown in economic growth, economists said.

``Inventories are helping put tremendous downward pressure on prices,'' said Christopher Low, chief economist at FTN Financial in New York, who forecast a sales rate of 4.99 million. ``I expect we're going to see a pretty significant slowdown in consumer spending in the first half of next year.''

The median home price dropped 5.1 percent to $207,800, the biggest decline on record, compared with October 2006.

The number of homes for sale at the end of the month rose 1.9 percent to 4.45 million. At the current sales pace, that represented 10.8 months' supply, compared with 10.4 months in September.

Highest Since 1985

The inventory of single-family homes represented a 10.5 months' supply, the highest since July 1985. Resales of single- family homes were unchanged at an annual rate of 4.37 million. Sales of condos and co-ops fell 9.1 percent to a 600,000 rate. Fort Worth, Texas-based D.R. Horton Inc., the second-largest U.S. homebuilder, reported its worst annual results in at least a decade in the three months ended Sept. 30.

Chief Executive Officer Donald Tomnitz said on a conference call that 2008 will be ``more difficult'' than 2007. The record loss posted by Freddie Mac, the largest U.S. mortgage company, may further constrain the home loan market, he said.

The drop in durable-goods bookings followed a revised 1.4 percent decrease in September, the Commerce Department said.0 Economists forecast orders would drop 0.1 percent, according to the median of 76 estimates in a Bloomberg News survey, after a previously reported 1.7 percent decline for September. Estimates ranged from a decrease of 3 percent to 2.8 percent gain.

Excluding transportation, orders fell 0.7 percent in October.

Business Investment

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, decreased 2.3 percent, the most since February, after a 1.2 percent increase in September that was larger than previously estimated. Shipments of those items, used in calculating gross domestic product, dropped 1.2 percent after rising 1.7 percent in September, which was also more than reported last month.

The drop in total orders was led by an 8.4 percent decline in demand for computers and electronic gear. Bookings for automobiles and commercial aircraft also fell.

Boeing Co., the world's second-largest maker of commercial planes, had orders for 56 aircraft in October, down from 132 a month earlier. Even so, demand this year has reached a record 1,047 planes, the company said on Nov. 21. It increased shipments last month to 42, from 34.

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