March 27, 2007

February home sales plunge more than expected in the US

WASHINGTON - SALES of new homes fell sharply for a second consecutive month in February, a weaker- than-expected performance that dimmed hopes for a rebound in the troubled United States housing market.

The data took a chunk out of last week's 370-point gain on the Dow Jones Industrial Average, its best performance in four years.

The benchmark index fell as much as 112.11 points, or 0.9 per cent, to 12,368.9. At press time, the Dow was down 89.57 points at 12,391.44.

The Commerce Department reported yesterday that sales of new single-family homes fell by 3.9 per cent last month to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years.

All regions of the US except the West experienced weakness last month.

Last month's decline followed an even larger 15.8 per cent drop in sales in January, which had been the largest one-month plunge in 13 years.

The back-to-back declines provided evidence that the housing market is continuing to struggle with lagging demand and a glut of unsold homes.

The weakness in sales pushed the median price of a new home down to US$250,000 (S$379,400) last month, a drop of 0.3 per cent from a year ago. It marked the second straight month that the median price fell compared with the same period a year ago. The median is the point where half the homes sold for more and half for less.

By region, sales were up 24.6 per cent in the West, a rebound after a 25.8 per cent plunge in January.

However, every other region showed weakness last month, led by a 26.8 per cent drop in sales in the North-east and a 20 per cent decline in the Mid-west, two areas which experienced a series of winter storms. Sales also fell in the South, dropping by 7 per cent.

Analysts had expected sales to increase last month, based on a view that January's steep plunge had overstated the weakness in housing.

The back-to-back declines served to support the forecasts of private analysts who believe the slowdown in housing has more months to run its course.

The plunge in housing has trimmed overall economic growth and is occurring as part of an effort by the Federal Reserve to raise rates as a way of slowing economic activity and curbing inflation.