• David Gill

Sales slide, but industry confident

WASHINGTON — Housing, until now the only economic sector showing any kind of strength, showed some signs of weakness in the most recently released figures on the industry's three major indicators.

Both of the sales indicators declined in April. The steepest dive came from new home sales, which fell 9.5 percent to 894,000 units on a seasonally adjusted annualized basis, according to the U.S. Department of Commerce. In addition, the National Association of Realtors (NAR) reported that April existing home sales were off 4.2 percent, to 5.2 million units on the same basis.

Housing starts, the figure that shows what home builders believe the future will look like, increased 1.5 percent to 1,609,000 units on the same basis, the Commerce Department said.

Those inside the housing industry aren't ready to call for rescue yet, however. Both NAR and the National Association of Home Builders (NAHB) are quite pleased with the state of their industry, even with the monthly figures indicating a slowing of growth.

NAR said resales remain "exceptionally strong." The association's chief economist, David Lereah, said, "Existing home sales are coming off of the second highest month on record (March, when resales hit 5,430,000 units on a seasonally adjusted annualized basis) and remain above forecast levels. The recent surge of activity results partly from a bottoming out of mortgage interest rates during the first quarter."

Regarding new home sales, Bruce Smith, NAHB's president, said, "An 894,000-unit rate is still quite healthy on an historic basis and is actually higher than the average sales rate for any of the past three years. Low interest rates on long-term mortgages, which NAHB projects will remain in the low 7 percent range throughout this year, are helping keep buyer demand firm."

The increase in starts, Smith said, "confirms that housing remains a relatively resilient part of the economy even as signs of weakness continue to emerge elsewhere. Rising home prices in the midst of ongoing problems in the stock market have buoyed the investment demand for houses."

The analysts agree with the two industry associations, but there are reasons for the housing sector to be cautious about the road ahead. Stan Shepley and Mary Dennis, both senior economists with Merrill Lynch, noted that mortgage rates have begun to rise recently, which "has led to a modest decline in mortgage applications for home purchases. In addition, the weakening job market may be taking a toll. Home sales are likely to ease further, but remain strong by any historic standard."

The drop in new home sales, said Mark Vitner, vp and economist of First Union Economics Group, may indicate "that the highs for the year have already been seen." Observing that other key indicators (consumer confidence, non-farm employment, industrial output and retail sales) have been soft recently, Vitner added, "April's drop in new home sales may mark a bit of a catch-up. While home sales are likely to remain strong, they are unlikely to get stronger."

Regarding starts, Dick Rippe, analyst with Prudential Securities, said the April number beat analysts' expectations (the market had expected a 0.8 percent drop in starts). "The bottom line on housing is that activity remains favorable, reflecting good mortgage rates and the affordability they allow, and shows that consumers are confident enough to make large purchases, even though confidence [overall] is down."

Housing by region
Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast -1.5 +10.6 -6.3
Midwest -1.7 -16.7 -10.9
South -2.8 +5.1 -13.1
West -10.3 +6.8 -10.3

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