Housing, Industry Show Fresh Signs Slide Is Moderate

June 2, 2009

From IBD

24 April 09

by Brad Kelly

Demand for new homes and big-ticket items last month largely held on to February gains, the Commerce Department said Friday, providing further tentative evidence that the housing and manufacturing sectors may be reaching a bottom after a long, sharp slide.

Sales of new homes dipped 0.6% in March to an annual rate of 356,000 units. But that was much better than expected because February’s sales pace was revised up by 21,000 units to 358,000. March sales were still 31% below a year earlier.

Housing is close to a bottom on the sales front, but that’s not to say we’ll see a bounce from here to new highs or anything,” Wachovia analyst Adam York said. “The big picture is that we’re not getting progressively worse.”

The number of homes for sale fell 5.2% to 311,000 in March, a seven-year low, as builders slash activity and prices. It was the biggest monthly drop so far in the current 23-month string of declines.

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It still would take 10.7 months to sell those properties at March’s sluggish sales pace, but that’s the lowest in eight months.

But York says home values will likely remain weak for months to come. The glut of unsold homes and competition from deeply discounted foreclosed properties will put more downward pressures on prices and homebuilders.

The U.S. median price fell 3.5% to $201,400 last month, the lowest since December 2003.

Affordable homes, low interest rates and an $8,000 tax credit for first-time homebuyers should provide a boost to sales this summer.

Still, with credit tight and unemployment at a 25-year high and climbing, sales won’t rebound substantially, York says.

Meanwhile, orders for durable goods — items expected to last longer than three years — declined 0.8% in March, only about half as much as analysts expected. Demand for aircraft offset weakness elsewhere.

However, February’s gain was revised down to 2.1%.

Actual orders remain close to January’s 12-year low.

Orders for non-defense capital goods ex aircraft, a proxy for business investment, rose 1.5% after increasing 4.3% in February. It’s the first back-to-back gain since last summer.

Durable goods inventories slid 1.1%, their third straight fall. But with shipments sinking, the stock-to-sales ratio rose to 1.90, the highest since September 1992. That suggests manufacturers will continue to cut inventories and output.

The news for ailing automakers Chrysler and GM (GM) didn’t get any better in March. Orders for transportation products fell 1.4%, including 1.7% for motor vehicles.

GM and Ford (F) sales likely rose in April vs. March, Edmunds.com estimated Friday. But Chrysler, which will likely file for bankruptcy soon, probably lost ground.

“The positive signals in the past couple of months are still relatively weak, but it shows the economy is improving,” said IHS Global Insight economist Brian Bethune. “Getting to a trough will be an important rite of passage for the economy to move ultimately to a recovery mode.”


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