New Home Sales, Durable Goods Probably Fell as Economy Worsened

New Home Sales, Durable Goods Probably Fell as Economy Worsened


Feb. 22 (Bloomberg) -- Sales of new homes in the U.S. probably plunged to a record low in January while durable goods orders dropped for a sixth month, economists said before reports this week.

A Feb. 26 Commerce Department report will show new-home sales fell to 324,000 on an annual basis, according to the median estimate of economists surveyed by Bloomberg News. The same day, the department may report demand for goods meant to last several years dropped 2.5 percent, economists said.

A surge in foreclosures and plummeting demand for homes has depressed prices, sending the S&P/Case-Shiller 20-city home price index down 18.3 percent in December from a year earlier, according to a separate Bloomberg survey. Meanwhile, shrinking household worth pushed auto sales in January to the lowest level in more than 26 years, and factories are scaling back production as demand from consumers and businesses erodes.

“Housing is going to be declining for a good, long time yet,” said Derek Holt, an economist at Scotia Capital Inc. in Toronto. “This is not going to be a market where builders put new supply into the market this year because of the sharp overhang.”

At the December sales pace of 331,000 new homes, it would take a record 12.9 months to whittle down the number of houses builders are holding, more than twice the five-to-six months supply the National Association of Realtors has said is consistent with a stable market.

U.S. home foreclosures rose 17.8 percent in January from a year earlier, according to a report this month from RealtyTrac Inc.

Stimulus Plan

President Barack Obama last week said his administration will use $75 billion to bring down mortgage rates and encourage loan modifications to keep Americans in their homes. He also signed into law a $787 billion stimulus package that includes tax breaks and increases in government spending designed to resuscitate the economy.

Excluding bookings for transportation equipment such as cars, trucks and airplanes, durable goods orders probably fell 2.2 percent in January, according to economists surveyed.

“The decline in global demand has fundamentally kicked out the final leg of support for the economy,” said Joseph Brusuelas, director of Moody’s Economy.com, referring to domestic and overseas demand for manufactured goods.

Revised GDP Drop

The U.S. economy probably contracted at a 5.4 percent annual pace in the fourth quarter, weaker than previously estimated and the worst slump in 26 years, according to the median forecast in a Bloomberg survey. Commerce is scheduled to release its first revised report on Feb. 27, after saying on Jan. 30 that the economy shrank at a 3.8 percent pace.

Economic weakness and 13 consecutive months of job losses have hurt Americans’ outlook. Economists say the Conference Board will report on Feb. 24 that its consumer confidence index fell this month to 35, a record low. The Reuters/University of Michigan final index of consumer sentiment, scheduled to be released on Feb. 27, probably fell to 56, according to the Bloomberg survey.

U.S. sales of cars and light trucks plunged to a 9.6 million annual rate in January, according to industry data. General Motors Corp. said Feb. 3 it will reduce North American first-quarter production 57 percent amid flagging demand.

‘Unusually Uncertain’

Other industries have seen a pullback in sales as consumers and companies try to save money. Deere & Co., the world’s largest maker of farm equipment, said Feb. 18 that first-quarter profit fell 45 percent and cut its full-year earnings forecast.

“Ongoing higher material costs, the deepening global recession, and volatile foreign exchange rates have put downward pressure on our financial results,” Deere Chief Executive Officer Robert Lane said in a statement, adding the “unusually uncertain” outlook led him to delay a quarterly forecast.

Still, there are signs the housing market is bottoming out, which many economists say is the necessary precondition for economic recovery. While new-home sales are forecast to drop for a sixth straight month, the estimate for January would represent the smallest decline since a gain in July.

Also, sales of existing homes, scheduled to be reported by the National Association of Realtors on Feb. 25, probably increased to a 4.8 million annual rate in January, according to the survey median. Foreclosure-driven declines in prices have given resales a lift since reaching a record-low 4.45 million pace in November.

BLOOMBERG