U.S. stocks were mixed and trading in a volatile atmosphere on Wall Street after the opening bell on Tuesday behind the report that the new home sales pace dropped to a projected 915,000 for the year in May, from 980,000 in April, report MarketWatch and other news agencies.
Economists had only expected the fall-off to go down to a pace of 924,000 new home sales.
Stocks had been posting early gains from the opening bell on Wall Street, but retreated in the wake of the worse than expected news.
The Commerce Department also said that the supply of unsold homes rose in tandem with the slower sales pace.
Additionally, a leap upward in mortgage rates coupled with the unsold homes on the market shall continue to discourage new home construction, according to economists. They say that the housing “bust”, which is the worst seen in the U.S. since 1991, will continue to drag on the economy throughout the remainder of 2007 and on into next year.
“The housing market should continue to be a drag to growth. Excess inventories and soft demand should keep homebuilders from increasing construction until after next year,” John Shin, an economist at Lehman Brothers Holdings Inc. in New York, told Bloomberg.
This marks the 17th consecutive month in which new home prices fell, according to Standard & Poor’s. The S&P/Case-Shiller index covering 10 U.S. cities fell 2.7 percent from what it read a year ago. The 20-city index showed a price drop of 2.1% for single family homes in the United States.
While home price appreciation has slowed, actual home prices have doubled in the last seven years.
“No region is immune to the weakening price returns,” MacroMarkets Chief Economist Robert Shiller was quoted as saying by the Associated Press.
Diminishing real estate values could erode consumer confidence and thus depress spending, the factor that has kept the stock market on its drive into new record closes in the last year.
“There are some pretty significant negative risks for economic growth. We are not at the bottom yet in housing. One of the biggest questions is how much longer can the consumer hang on, given the strong headwinds,” Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York, told Bloomberg.
“The housing market is in a contractionary phase and we don’t expect that to end anytime soon. We won’t see another huge decline, housing will just sort of glide down,” added Julia Coronado, a senior economist at Barclays Capital Inc. in New York.
Bloomberg, “U.S. Economy: Consumer Confidence Declines, Housing Weakens”
Associated Press, ” S&P Says U.S. Home Prices Fell in April”
MarketWatch, “Home prices fall at fastest rate in 16 years”