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Sales Of New Homes Plummet To Lowest Point In 7 Years

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By JEANNINE AVERSA, The Associated Press

Published: September 28, 2007

WASHINGTON - New-home sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating the painful housing slump.

Sales of new homes dropped by 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000 units. That was the lowest level since June 2000, when sales clocked in at a pace of 793,000.

The home sales report came on the same day the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8 percent pace was less than previously estimated, and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold.

The median sales price in August fell 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years. The median price is the middle point at which half sell for more and half for less. The average sales price dropped 8 percent in August from a year earlier to $292,000. That was the biggest decline in 17 years.

Sales fell in the South and West in August compared with July. Sales, however, rose in the Northeast and Midwest.
Commerce Department data is not broken out by state. The latest available data that does examine local numbers from the second quarter shows that builders in Hillsborough, Pasco and Hernando counties started work on fewer homes in the second quarter of 2007 than in the same quarter of 2006, according to Metrostudy, a Houston-based housing research firm. The three counties saw declines of 46.4 percent, 56.1 percent and 18.4 percent, respectively.

The new-homes sales report, combined with other recent economic reports showing a sharp drop in demand for big-ticket manufactured goods in August, suggested the economy lost momentum as it headed into the fall.

Another report issued by Commerce showed that the economy staged a rebound in the spring before a credit crisis raised new fears about longer-term business health.

The economy's 3.8 percent growth rate in the April-through-June quarter was the strongest showing in just more than a year. Although the new reading for the second quarter was slightly less robust than a previous estimate of a 4 percent growth rate, it nonetheless marked a substantial improvement over the feeble 0.6 percent growth rate registered in the prior quarter.

Gross domestic product is the value of all goods and services produced within the United States and is considered the best barometer of the country's economic health.

The increase in the rate of growth, though, is likely to be fleeting. A deepening housing slump and painful credit crunch have darkened the moods of individuals and businesses. That has led analysts to predict that economic growth has slowed considerably in the quarter that ends Sunday.

The National Association for Business Economics says it thinks growth in the third quarter - the period from July through September - slowed to a pace of about 2.4 percent. The association predicts the growth rate in the final three months of this year will be about 2.5 percent. Others think growth will turn out to be weaker.

Fears that the troubled housing market and credit problems could short-circuit the 6-year-old economic expansion have shaken Wall Street. The biggest worry is that people and businesses will cut back on spending and investment, throwing the economy into a tailspin.

Former Federal Reserve chairman Alan Greenspan, in an interview with The Associated Press last week, said the odds of a recession are now higher than one-in-three but are still under 50 percent.

The Federal Reserve slashed a key interest rate last week. The hope is that lower rates will induce more spending and investment and thus energize overall economic activity. Many analysts think another rate cut will come in late October.

Critical to the economy's outlook is the health of the jobs market.

In another report, fewer people signed up for unemployment benefits last week, raising hopes that the recent weakness in the jobs market won't be long lasting.

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