Sales of new houses, too

The numbers is out – and they is not good (?). Sales of new houses fell 1.6% on last month (and last month was also lower than expected). Higher falls in metropolitan areas.

Sales of new homes were down 16 percent from the same time last year. The number of homes that are completed and waiting to be sold fell by 2,000 to 177,000.

A jump in mortgage rates this month and a glut of unsold properties on the market will continue to discourage home construction, economists said. The housing slump, already the worst since 1991, will restrain the economy for the rest of the year and potentially into next.

“The housing market should continue to be a drag to growth,” said John Shin, an economist at Lehman Brothers Holdings Inc. in New York. “Excess inventories and soft demand should keep homebuilders from increasing construction until after next year.”

Home prices in 20 metropolitan areas dropped 2.1 percent in the year ended April, the biggest year-over-year decline since record keeping began in January 2001, according to a report today from S&P/Case-Shiller. The decline was led by a 9.3 percent drop in Detroit and a 6.7 percent fall in San Diego.

Quick piece of economics: lower demand means increasing supply (for things like houses – more of which are going on the market, to boot).

Lennar Corp., one of the nation’s leading homebuilders, said Tuesday it fell to a second-quarter loss as inventories of unsold homes rose and it had to cut prices to attract buyers. Lennar also warned that it would likely post a loss in the third quarter as well.

“As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions,” Lennar President and Chief Executive Stuart Miller said.

Losses totaled $244.2 million, or $1.55 per share, versus a profit of $324.7 million, or $2 per share, in the previous year.

Lennar shares fell 19 cents to $38.56 in mid-morning trading.

Lennar stock

That’s a higher price-drop (though a lower percentage) than Queen’s Walk faced yesterday – but then, Queen’s Walk was moving away from this sort of thing. Lennar Corp. builds houses, and that trend suggests that, safe though houses might be, profits from them are going the way of profits from buying and selling the mortgages on them. Lennar Corp. has certainly lost a lot of money in one year.

The Bloomberg article also mentions profits at Bed Bath & Beyond Inc. being lower than forecast, even while Fed chairman Bernanke says the softness in the housing market, as well as the tightening of rates and credit, are not spilling over.

Bloomberg’s Housing Recession (the wire service, not the mayor of New York) may well hold for a while. The deficit is widening but manufacturing is up, which helps limit the effects of less borrowing. Then there is the still-ready access to easy borrowing, that the Bank for International Settlements would like to see shut down.

This isn’t exactly the same as the whole sub-prime lending …thing. That is a situation in which a lot of people were sold mortgages that banks should have known they couldn’t afford. In the meantime the debt was itself sold, and different people are suffering the defaults. It does have the effect of widening the exposure to the problem, but then misery loves company. This is a situation in which confidence is low, borrowing is finally taking its toll, inflation is real but real wages aren’t moving – it’s harder to afford to buy a house, basically. Unfortunately one problem is leading towards a shake-out of the capital market that isn’t really dependent on the core value of stocks (it seems), and the other is leading us towards a shake-out of earnings, profits, and a shake-out of the rest of the stock market that is. Ouch.


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