New home sales plunged to a 17-year low in March as tighter credit conditions and weakening consumer confidence kept prospective buyers on the sidelines in spite of sharp price declines.
Single-family home sales slumped 8.5 per cent in March to a 526,000 annual rate, the lowest since October 1991, 36.6 per cent below the same period the previous year.
Economists had forecast March sales to fall to a 580,000 annual pace but the result came in much worse than expected after February’s sales were revised lower from 590,000 to 575,000.
The median sales price of a new home fell to $227,600 from $244,200 in February, 13.3 per cent below last year’s figure - the biggest decline since 1970.
“The continued deterioration in housing demand reflects high borrowing costs, anticipation of lower home prices and overall gloomy consumer sentiment. We suspect these factors will continue to depress home sales for the next several months,” Michelle Meyer, economist at Lehman Brothers, said.
New homes sales data can be volatile and are often subject to significant revisions. Nevertheless, the figures still came as a shock to some economists who were expecting the pace of sales declines to slow.
“This report shows no signs of stabilisation in the new home sales market as sales have fallen for five straight months and are dropping at a faster rate,” John Ryding, chief US economist at Bear Stearns, said.
Although overall inventories decreased they did not keep pace with the sharp fall in sales. Inventories of unsold new homes at the current sales rate rose 7.8 per cent to 11 months supply, the most since 1981, a dismal sign of the outlook for the residential market.
Patrick Newport, economist at Global Insight, said that aggressive price cuts would eventually pay off, with new home sales expected to turn higher in the second half of the year.
There was mixed news for the manufacturing sector as durable goods orders fell for a third consecutive month, but excluding volatile transportation and defence items orders were significantly better.
New orders for big-ticket manufactured goods slipped 0.3 per cent in March, after a revised decrease of 0.9 per cent the previous month.
A 4.6 per cent drop in motor vehicles and parts orders contributed to the overall decline after a strike at a major parts manufacturer.
Excluding transportation new orders rose 1.5 per cent and excluding defence orders edged 0.3 per cent higher.
Non-defence capital goods orders, a closely watched measure of business equipment investment, increased 1.5 per cent but excluding aircraft core these orders were unchanged, after a revised 2 per cent decline in February.
Non-defence capital goods shipments excluding aircraft, a measure which feeds into gross domestic product calculations, increased 1.2 per cent after a decline of 1.6 per cent in February.
Stephen Stanley, chief economist at RBS Greenwich Capital, said the report was “mildly encouraging after two months of clear contraction to start the year”.
Weekly jobless claims fell 33,000 to 342,000 in the latest week, the lowest since mid-February and much better than the broadly unchanged reading forecast by economists.
The four-week moving average, a less volatile measure of the labour market, fell 7,250 to 369,500.
Source: Financial Times