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Bloomberg Press New-Home Sales in April Jump by the Most in 14 Years (Update2) By Bob Willis May 24 (Bloomberg) -- Purchases of new homes in the US unexpectedly surged in April by the most in 14 years, ignited by the biggest decline in median prices since 1970. Sales rose 16 percent to an annual pace of 981,000 last month from an 844,000 rate the prior month that was less than previously reported, the Commerce Department said in Washington. The supply of unsold homes at the current sales pace dropped. Falling prices and incentives offered by builders such as Centex Corp. are stirring demand for new homes after two years of falling sales. Still, a glut of unsold properties suggests homebuilding is likely to remain a drag on growth throughout this year and into 2008. The report starts to seal the argument that the housing market is beginning to stabilize, at least in terms of demand,'' said Richard DeKaser, chief economist at National City Corp. Stock rose and yields on US Treasury securities jumped after the report suggested housing, the weakest part of the economy, was on the mend. The yield on the benchmark 10-year note rose 5 basis points to 490 percent as of 10:39 am New York. Earlier, the Commerce Department reported orders for durable goods recorded a third straight gain last month, the longest streak in almost two years, confirming that manufacturers will help buoy the economy. Durable Goods Orders Demand for goods meant to last several years rose 06 percent after a revised 5 percent increase in March that was larger than previously estimated, the Commerce Department said today in Washington. Separately, the Labor Department said that the average of first-time claims for jobless benefits in the past four weeks fell to 302,750, the lowest in more than a year. Economists forecast sales at an 860,000 annual pace from an originally reported 858,000 rate the prior month, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from an annual rate of 800,000 to 940,000. Biggest Drop in Four Decades The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today's report showed. The number of homes for sale at the end of the month dropped to 532,000 from 540,000 in March. That left the supply of homes at the current sales rate at 65 month's worth, the lowest this year, compared with 81 months in March. Citing tightened lending standards, the National Association of Realtors on May 9 lowered its forecasts for home construction and sales. It forecast new-home sales to fall this year to 864,000 from 105 million in 2006. Existing home sales will decline to 629 million this year, from 648 million in 2006, while housing starts will drop to 149 million from 18 million in 2006, the Realtors also forecast. New home prices will be unchanged this year while median existing-home prices may slip 1 percent from 2006, according to the forecast. They jumped 28 percent in the South, 85 percent in the West and 38 percent in the Northeast. Compared with a year earlier, new home sales were down 11 percent, today's report showed. Homebuilding Recession Home construction is in its worst recession since 1990, subtracting about 1 percentage point from growth in each of the last three quarters. The economy grew at a 13 percent pace in the first quarter, the slowest pace in four years. New-home sales, which account for about 15 percent of total home sales, are considered a better leading indicator of the market than existing home sales because they are recorded when a contract is signed rather than when the sales are closed. Most sales of existing homes are counted when a contract closes, usually a month or two later. Sales of existing homes, which account for 85 percent of the housing market, will be reported tomorrow by the National Association of Realtors. A surge of defaults among subprime borrowers led to the bankruptcy of more than 50 subprime lenders and stricter lending standards, along with narrowing borrowing options, for mortgage applicants. Mortgages in foreclosure jumped 62 percent in April, research company RealtyTrac Inc. Subprime Curbs on subprime lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters,'' Federal Reserve Chairman Ben S Bernanke warned on May 17 in a speech in Chicago. Although a leveling- off of sales late last year suggested some stabilization of housing demand, the latest readings indicate a further step-down in the first quarter,'' Bernanke said. Centex advertised no-money down financing on townhouses and condominiums, a full basement or $15,000 in options in the Chicago area in the Chicago Tribune on April 27.
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