Sales of previously owned US homes unexpectedly dropped 7.2 per cent in January to a seven-month low, indicating a lack of job growth is undermining government incentives to bolster the housing market.
The decline to an annual pace of 5.05 million, reported today by the National Association of Realtors in Washington, was the second-largest on record after December's 16.2 per cent plunge. A separate report showed the economy grew at a 5.9 per cent pace last quarter, faster than initially estimated.
A federal tax credit for home buyers is showing few signs of providing the lift that it did late last year, when purchases surged in November to the highest level since 2007. The figures cap a week of data -- including weaker consumer confidence, fewer business-equipment orders and more applications for jobless benefits -- that indicates the economy is losing momentum at the start of 2010.
"The numbers this week were disappointing but not so weak they'd be pointing to a double-dip," said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. "They are pointing toward a slow expansion."
A "tremendous amount" of unused capacity in the economy will prompt Federal Reserve policy makers to keep interest rates low for "an extended period," Former Fed Governor Frederic S. Mishkin said today.
"We're not going to get through that slack in the near term," Mishkin, a professor of economics at Columbia University in New York, said in an interview on Bloomberg Radio. "Monetary policy needs to be accommodative."
Consumer Sentiment
US stocks rose after another report today showed a measure of business activity expanded in February at the fastest pace since 2005. The Standard & Poor's 500 Index rose 0.1 percent to 1104.49 in New York.
The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 62.6 this month from 61.5 in January. Readings greater than 50 signal expansion.
The Reuters/University of Michigan final index of consumer sentiment for February dropped to 73.6 from 74.4 in January.
The economy expanded at a 5.9 percent annual rate in the fourth quarter, the best performance in six years, the Commerce Department said in its first revision of the figures. Inventories added 3.88 percentage points to gross domestic product, and investment in software and equipment grew at the strongest pace in almost a decade.
Economists forecast existing home sales would rise to a 5.5 million rate in January, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from 5.04 million to 6 million.
First-Time Buyers
The share of homes sold to first-time buyers fell to 40 per cent in January from 43 per cent the prior month, Lawrence Yun, the Realtor group's chief economist, said in a news conference, indicating the renewal of the tax credit in early November failed to spur increased demand.
The end of Fed purchases of $US1.25 trillion in mortgage- backed securities, aimed at keeping borrowing costs low, represents another challenge for housing. The program is scheduled to expire at the end of March. The average rate on 30- year mortgage has hovered within a half point of 5 per cent since August, according to Freddie Mac.
Federal Reserve Bank of Chicago President Charles Evans said liquidity added to the market by the Fed will keep borrowing costs low.
"When we stop buying them there is a lot of liquidity that we will have put in place, which are supporting lower mortgage rates," Evans said in an interview with CNBC today. "We certainly would like to see the housing market take off. It is quite a ways away from that."
Home Improvement
Weakness in housing is damping the outlook for companies including Home Depot Inc., the largest US home-improvement retailer.
"We're not projecting robust growth," Frank Blake, chief executive officer at Atlanta-based Home Depot, said Feb. 23 on a conference call, citing rising mortgage defaults and a lack of employment. The company reported a fourth-quarter profit that topped analysts' estimates.
The number of previously owned unsold homes on the market decreased 0.5 per cent to 3.27 million. At the current sales pace, it would take 7.8 months to sell those houses, compared with 7.2 months at the end of December.
The median price was $US164,700 in January, unchanged from a year earlier.
Purchases fell in all four regions of the country, declining 11 percent in the Northeast, 7.4 per cent in the South, 6.9 per cent in the Midwest and 5.2 per cent in the West.
Mortgage Meltdown
Housing, the industry that ignited the subprime mortgage meltdown and triggered the worst recession in seven decades, began to recover in 2009 after a three-year decline. Some 5.16 million previously owned homes were sold last year, up from 4.91 in 2008.
New-home sales, which account for less than 6 per cent of the market and compete with cheaper foreclosed properties, fell in January to the lowest level on record, the Commerce Department reported Feb. 24.
Even as the economy is forecast to grow an average 3 per cent this year, it isn't generating jobs. Economists surveyed at the beginning of this month forecast unemployment this year will average 9.8 per cent, a percentage point below the historic post World War II-peak of 10.8 per cent reached in November 1982.
