- The Washington Times - Tuesday, March 27, 2007

New-home sales plummeted last month to 2000 levels, while the backlog of unsold homes soared to the highest in 16 years — signs the housing market is weakening as mortgage credit is tightened for many potential homebuyers.

The report from the Census Bureau triggered a sharp sell-off in stocks and the dollar, with the Dow Jones Industrial Average falling as much as 100 points before recovering to end down 12 points.

The 3.9 percent drop in sales to an annual rate of 848,000 follows a bigger plunge of 15.8 percent in January; revisions showed that 172,000 fewer homes were sold between November and January.

“Housing still has some distance to fall” and has not reached bottom despite an 18.3 percent drop in sales in the last year, said Phillip Neuhart, economic analyst with Wachovia Securities. An 11 percent jump in the number of homes for sale brought inventories to an 8.1-month supply — the worst since the housing recession of 1991.

The median new-home price fell 0.3 percent to $250,000 from $250,800 a year ago.

“Nasty weather was partly responsible” for the retrenchment last month, said Roger M. Kubarych, economist with UniCredit Markets. “Sales were weakest in the Northeast and Midwest, where ice storms made it difficult for people to travel even locally.”

But the report shows that the housing recession clearly is not over, he said, and will continue to pose concerns for the Federal Reserve, which last week indicated that it had suspended further interest-rate increases because of the turn for the worse in housing.

Signs also emerged yesterday that the mortgage-credit crunch was intensifying. U.S. foreclosure filings last month rose 12 percent from a year earlier, to more than 130,000 homes, according to RealtyTrac, an online listing of foreclosed properties.

Moody’s Investors Service reported that late payments on home-equity loans that have been securitized into bonds rose by the most since 1996. Late payments, foreclosures and seized property in December climbed 3.1 percentage points from a year earlier to 9.8 percent of the securitized loans, which are mostly in the subprime category.

“The combination of higher rates and weakness in the housing market is making it more difficult for troubled borrowers to refinance or sell their homes,” Moody’s said.

Michael Moskow, president of the Federal Reserve Bank of Chicago, said in a speech yesterday that housing’s woes are front and center on the central bank’s radar.

“Among the greatest risks to the outlook for growth are continued declines in housing,” he said, noting that the sharp drop in residential investment last year already has slashed the economy’s growth rate by three-quarters of a percentage point.

In addition to the risk of a further slide in home sales, Mr. Moskow said “there are also financial risks associated with the declines in housing markets.”

The increased delinquencies in subprime mortgages could spill into the broader credit market, and the retrenchment in housing could suppress consumer spending, though little evidence of that has emerged, he said.

While the leveling off and drop in home prices in many areas “should boost savings” and cause consumers to be more cautious, he said he expects solid gains in jobs and incomes to support consumer spending and the broader economy for the rest of the year.

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