Fall in US house sales a worry for economy - Industry may not have seen worst yet

Fall in US house sales a worry for economy
By Eoin Callan in Washington and Doug Cameron in Chicago
Copyright The Financial Times Limited 2007
Published: March 26 2007 15:41 | Last updated: March 27 2007 01:16


Americans bought far fewer newly built homes than expected last month in a worrying sign for the economy, government figures showed on Monday.

Sales of new homes fell 3.9 per cent to an annual rate of 848,000 in February, while purchases in January were also sharply lower than previously thought.

The trend comes amid the vital spring selling season and will shake construction industry confidence that demand is stabilising.

Gary Bigg, an economist at Bank of America securities, said: “This suggests that the recovery in residential construction may be stretched out beyond the first half of 2007.”

Sales last month were 18 per cent lower than a year ago and many economists fear the market could be pushed lower by the subprime mortgage crisis.

Defaults on high-risk loans have caused the collapse of more than 24 subprime mortgage lenders and prompted fears that more than 2m Americans could be at risk of foreclosure in the next two years as payments jump on popular teaser-rate loans.

Michael Moskow, president of the Chicago Federal Reserve, said: “This could become an issue for the macro[economic] outlook if these troubles spilled over to the availability of credit in markets more generally.”

Mr Moskow said the indications of improvement were “uneven” following a report last week that showed sales of existing homes rose.

The figures suggest some builders were over-optimistic in their planning for an early rebound, said analysts.

The slow pace of sales and an increase in completed homes pushed inventories of unsold houses to a 16-year high: more than eight months of supply at the current rate of sales.