Worst Sales Of New Homes On Record

Wall Street Advances After Big Drop In New Home Sales, Disappointing Earnings

(CBS/AP)  Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.

The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.

The government reported that the median price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.

The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.

The housing weakness has dragged down overall growth and sent shockwaves through the rest of the economy including the financial sector, which is dealing with billions of dollars in losses in subprime mortgages.

Some analysts are worried that the fallout could become so severe it will drag the entire country into a recession.

The Federal Reserve unexpectedly cut a key interest rate by the largest amount in more than two decades last week following an emergency meeting, and it is expected the Fed will cut rates further at a regular rate-setting meeting this week.

The 26.4 percent drop in sales for 2007 represented weakness in every part of the country except the Northeast, where sales posted a small 1.6 percent advance. Sales recorded declines of 32.2 percent in the West, 26.7 percent in the Midwest and 26.3 percent in the South.

Wall Street Advances On Rate Cut Hopes

A jittery Wall Street advanced Monday, reversing some of Friday's sharp losses as investors took a dismal new home sales report as a sign the Federal Reserve will lower rates this week.

The Dow Jones industrial average rose more than 176 points in a session that was relatively calm when compared to the turbulence of last week.

On the surface, the advance appeared surprising after the Commerce Department reported sales of new homes in December fell by 4.7 percent and that 2007 new home sales plunged by a record 26.4 percent compared to 2006. But while the report at first exacerbated the market's concern that the housing and mortgage crises are causing a recession, it also raised hopes that the Fed might cut rates again by a wide margin to stoke the weakening U.S. economy.

"Anticipation of another Fed rate cut is the main magnet in the market today," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc.

He was skeptical the gains would stick - anything the Fed decides after its two-day meeting lets out Wednesday could be met with disappointment. If the rate cut is small or nonexistent, the market will likely be unsatisfied; if the cut is wide, the market may worry the economy is worse than it thought.

"If we do rally into a Fed rate cut, we have a lose-lose situation," Goldman said.

And traders who bet on the Fed's next move were pricing in a more than 80 percent chance of a half-point cut.

"Any less than that could be a problem," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.

According to preliminary calculations, the Dow rose 176.72, or 1.45 percent, to 12,383.89 by late afternoon after falling as many as 95 points in morning trading. On Friday, the blue chip index tumbled 171 points after a two-day advance of more than 400 points.

Broader stock indicators also advanced Monday. The Standard & Poor's 500 index rose 23.36 or 1.76 percent, to 1,353.97, while the Nasdaq composite index rose 23.71, or 1.02 percent, to 2,349.91.

Government bond prices slipped as stocks rose. The 10-year Treasury note's yield, which moves opposite its price, was at 3.59 percent, up from 3.58 percent last Friday.

Alexander Paris, economist and market analyst for Chicago-based Barrington Research, said most investors were waiting for the Fed to announce its decision on Wednesday before making any big bets. That was one of the reason for a quiet trading day where the Dow stayed mostly in positive territory.

"It was calmer than I expected it would be, especially when you have lots of news for investors to look at," he said. "But, it's the Fed offsetting the news - and people don't want to make a big move when you don't know what they're going to do about interest rates."

However, trading for the week is expected to be volatile as Wall Street digests President Bush's final State of the Union address Monday evening and the Fed's rate announcement Wednesday. Last Tuesday, in an emergency move, the Fed lowered rates by 0.75 of a percentage point.

Hopes for another large cut on Wednesday had been tempered late last week by news that French bank Societe Generale sold European index futures to close positions taken by an alleged rogue trader. It is thought those trades may have aggravated the massive losses in Europe and Asian trading last Monday, when the U.S. markets were closed.

Profit reports Monday were ostensibly upbeat, but revealed some troubling signals about the economy. Fast food seller McDonald's, a Dow component, said its quarterly profit rose 3 percent due to tax benefits and strong sales, but December U.S. sales were flat with a year ago as cash-strapped consumers pared back spending. McDonald's shares fell $3.03, or 5.6 percent, to $51.07.

Merger and acquisition news added to the market's uncertainty. Blackstone Group LP on Monday said it is still interested in buying Alliance Data Systems Corp., but that the $6.4 billion deal is in jeopardy because regulators want to place onerous terms on the takeover. ADS dropped $23.12, or 35 percent, to $42.48. Blackstone slipped 21 cents to $19.15.

The dollar fell against most major currencies except the yen, and gold prices rose.

Crude oil rose 28 cents to settle at $90.99 a barrel on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by nearly 3 to 1 on the New York Stock Exchange, but volume was a relatively low 1.39 billion shares.

The Russell 2000 index of smaller companies rose 13.79, or 2.00 percent, to 702.39.

Asian trading saw steep losses - in Tokyo, the Nikkei stock average dropped 4 percent and a key index in Shanghai plunged 7.2 percent. In Europe, London's FTSE 100 fell 1.36 percent, Frankfurt's DAX rose 0.03 percent and Paris's CAC 40 lost 0.61 percent.

[beehive21-2009]

We have been in the same home for 30 years. The builders have been tearing down all of the homes in our neighborhood and building these castles that sell for 1.5 to over 2 million. Our home is paid for and we are keeping it.
It will be the smallest home on the block. Our lot is worth more than the house.How true, a four thousand sq.ft. house is too large for two. We grew up in 1000 sq ft w/ three bedrooms one bath,large lot, garden trees lots of lawn ,the new castles have no land,garden,lawn, time to down size.Let us give the house to the low end,shift things around an move on.

[georgiagrl1]

No one can afford to buy a new or existing home until the mess with the economy, fuel prices, cost of goods, etc. is fixed. In my neighborhood, there are many homes for sale, which have been on the market 3 years or more beause the homeowners won''t budge on the asking price. These homes are marked up as much as 150% more than than the true value by the standard in the neighborhood, (example, home around the corner from me worth $100k is on the market for $250k). These folks need to wake up. If they want to sell that empty home, they need to post a more realistic asking price.

[ianlou]

Anyone who had a 3 digit IQ knew that housing and credit was going to burst. Yet those who ran the fed and the treasury say they couldn%u2019t see this freight train coming? Incompetence has certainly taken on an entirely new meaning since we%u2019ve had 8 years of Bush.
Posted by cbsblogger

Incompetence in the Bush administration should not surprise us:
We have a leader with a C- GPA who filled the White House with graduates of evangelical colleges who create policy based on their belief in Creationism, Eminent Domain, Immaculate Conception, Manifest Destiny and the upcoming Rapture.

Who needs Smarts when you have Faith?

[cyberus-2009]

What I''d like to know is why selling homes in a market where we have more housing than people to live in it is a earth shaking development.
When the car industry makes more cars than they can sell they expect the market to adjust itself, when realtors and construction companies can make a buck its a national crisis?

[ianlou]

Liberals are still losing their War Against America.
Posted by One_American

One_American:
Goose-stepping with enthusiasm doesn''t make you a positive influence...
or right.

[pollroller1]

We have been in the same home for 30 years. The builders have been tearing down all of the homes in our neighborhood and building these castles that sell for 1.5 to over 2 million. Our home is paid for and we are keeping it.
It will be the smallest home on the block. Our lot is worth more than the house. I guess we will leave when we are carried out in a pine box. LOL

[luckygirl042]

The article states: "The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s"
******************
And yet, in my FORMERLY rural small town, they are still uprooting everything to build even MORE McMansions while a lot of the existing homes are for sale or standing emply. There are quite a number of forclosures and tax sales on these houses also in this area. I guess I''m just a dumb hick, but why continue to build what you can''t sell?? I must have missed something.

[brianbwb-2009]

Posted by donyang2000

Take it to the gay porn sites, son, this stuff is not welcome here...

[lemonskink]

Affordable housing is on the way soon. Walmart camping tents.

[brianbwb-2009]

Posted by Doctxt

Half? you mean half of what was left after Nixon sold most of it on the open market, starting on august 19, 1972?