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Home sales at 2-year high

May 26th, 2010 12:56 PM by Lehel S.

Home sales at 2-year high

WASHINGTON
Wed May 26, 2010 1:36pm EDT

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Toll Brothers, Inc.
TOL.N
$21.31
+0.70+3.40%
9:35am PDT

WASHINGTON (Reuters) - New U.S. home sales 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.

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While the data on Wednesday 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 U.S. economy back into recession or slow it to such an anemic 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 U.S. single-family homes jumped 14.8 percent 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 percent last month to their highest level since September 2008, boosted by a 228 percent surge in bookings for aircraft. Markets had forecast orders increasing 1.3 percent.

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

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 the second half of last year.

They also implied first-quarter growth figures could be revised higher when the government publishes its second estimate on gross domestic product on Thursday.

RECOVERY GATHERING MOMENTUM

The reports helped markets to shift focus away from Europe's debt woes. U.S. stocks rose, with homebuilder shares posting hefty gains. Prices for U.S. government debt fell, while the U.S. dollar rose versus the euro and the yen.

Luxury homebuilder Toll Brothers Inc (TOL.N) on Wednesday reported a smaller quarterly loss and said consumer demand was now picking up. Toll Brothers shares rose 3 percent to $21.26.

"The data demonstrate that, despite the fiscal meltdown in Europe, the recovery in the U.S. is still gathering momentum," said Paul Ashworth, senior U.S. 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 rebounding toward the end of the year. Buyers had to sign contracts by April 30 and close on the home by the end of June to qualify for the federal tax credit.

New home sales 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.

"Housing will survive the expiration of tax credit because the other economic fundamentals are improving and that's the icing on the cake," said PNC Financial's Hoffman, referring to a strengthening labor market.

Despite the jump in sales last month, the median sale price for a new home dropped a record 9.7 percent from March to $198,400, 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. (Reporting by Lucia Mutikani; Editing by Kenneth Barry)

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Posted by Lehel S. on May 26th, 2010 12:56 PM

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