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US home sales at two-year high, durable goods orders up

WASHINGTON: Sales of new US homes scaled their highest level in nearly two years in April, while orders for long-lasting manufactured goods surged, giving the economy a firmer foundation to resist possible contagion from Europe's debt crisis.

While the data on Wednesday, May 26 was skewed by a home buyer tax credit and a more-than-doubling in aircraft bookings, it showed the economy's recovery had underlying strength, analysts said.

"The problems in Europe have a downside risk, but I don't think that's going to push the US economy back into recession or slow it to such an anaemic pace," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

"Conditions are much better to withstand the fallout from the problems in Europe," he said, where budget cutbacks risk a return to recession.

Sales of new US single-family homes jumped 14.8% to a 504,000 unit annual rate last month, the Commerce Department said. Markets expected a 430,000 unit pace.

The jump in sales reflected buyers signing contracts to benefit from a popular government tax credit. A pullback is expected this month. Demand for loans to buy a home has already dropped sharply and held at a 13-year low last week.

In another report, the department said durable goods orders increased 2.9% last month to their highest level since September 2008, boosted by a 228% surge in bookings for aircraft. Markets had forecast orders increasing 1.3%.

Excluding transportation, however, orders unexpectedly dropped 1%. But March's gain was revised up to 4.8% from 3.5%.

Although the report gave a mixed reading on the factory sector, analysts said upward revisions to a host of categories in March were a sign of strength in the manufacturing-led recovery that started in 2H2009.

They also implied 1Q growth figures could be revised higher when the government publishes its second estimate on gross domestic product on Thursday, May 27.

The data initially helped markets to shift focus away from Europe's debt woes, but an unsourced report claiming China was reassessing its eurozone debt holdings brought the region's troubles back on investors' radar.

US stocks ended down, with the blue chip Dow Jones industrial average closing below the 10,000 threshold for the first time since early February. US government debt prices fell and the dollar rose for a third straight day versus the euro.

Luxury homebuilder Toll Brothers Inc reported a smaller quarterly loss and said consumer demand was picking up.

"The data demonstrates that, despite the fiscal meltdown in Europe, the recovery in the US is still gathering momentum," said Paul Ashworth, senior US economist at Capital Economics in Toronto.

"Increasingly, signs are emerging that private domestic demand might just be robust enough to survive Europe's woes, the removal of the fiscal stimulus and a renewed housing downturn, without economic growth slowing too drastically."

Home sales are expected to ebb in the aftermath of the tax credit before trending higher toward the end of the year. Buyers had to sign contracts by April 30 and close the purchase by end-June to qualify for the federal tax credit.

Sales of new home are measured at contract signing. Sales of previously owned homes are recorded at contract closing and are expected to rise through June when the tax credit ends.

Analysts said a strengthening labour market, affordable house prices and low mortgage rates would support the housing market, whose collapse was the main trigger of the longest and deepest recession since the 1930s.

"The market is absolutely starting to recover, but I think what will happen for the year will be a very steady, slow increase," said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York.

"What you will see at least in May and June is a little bit of a decline because of accelerated sales in March and April."

Despite the jump in sales last month, the median sale price for a new home dropped a record 9.7% from March to US$198,400 (RM656,310), the lowest since December 2003.

However, the blow from slumping house prices was softened by a record drop in the supply of homes on the market to the lowest level since October 1968. Last month's sales pace left homes available for sale at 5.0 months supply, the lowest since December 2005, compared with 6.2 months in March. -- Reuters

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