New Home Sales up in September

By Rick Moran

Sales of new homes were up an unexpected 4.8% in September following near record low numbers in August.

That level of activity was still 23.3 percent below a year ago, indicating that housing remains in a steep downturn. Analysts had been expecting sales would fall by 2.5 percent last month from an August sales pace that had originally been reported as 795,000 homes.

However, that figure was revised sharply lower in the new report to show a sales rate of just 735,000 in August, the slowest sales pace in 11 years.

Meanwhile, orders for big-ticket manufactured goods dropped an unexpected 1.7 percent last month following an even bigger 5.3 percent plunge in August. The first back-to-back declines in factory orders in more than a year raised new worries about how much harm would be inflicted on the economy from a severe housing slump and credit crunch.

Fewer new homes mean fewer new appliances being bought, less furniture, and a downturn in home furnishing sales. Housing is such a large part of the overall economy that it's only natural for worries to surface when things go south.

But the economy has other underlying strengths including a strong employment picture, historically low interest rates, a rising stock market, and still abundant consumer confidence. Since less of the economy today is dependent on factory orders, the losses can be offset in other areas of the economy that are doing well.

Still, any prolonged slump in the housing industry would not be good for economic activity. And the problem with the current downturn is that no one knows when it will bottom out. Most experts are predicting that by the beginning of the second quarter next year, we should be seeing better numbers in the housing markets. But that depends on other factors related to the sub prime mortgage crisis and at this point, it's pretty much all guesswork.