The housing market in the United States continues to deteriorate with new home sales falling 10.2% in January, bringing new home sales to 309,000 annualized units, the lowest reading in the series. The prior month's figure was, however, revised up to 344,000 from the initially reported 331,000. All regions except the Northeast suffered declines, with a particularly acute 28% contraction in the West. Today's release follows yesterday's report of a 5.3% drop in existing home sales.
The median selling price fell to $201,100 from the prior month's $223,200. Despite the fact that prices are now at their lowest since December of 2003, sales are down, while inventories (as measured by months supply) continued to climb. In January months of supply rose to an all-time high of 13.3 after a 12.2 reading (revised down from 12.9) in December. The absolute number of new homes in inventory did, however, fall to 342,000 from 353,000 (revised down from 357,000) in December.
Durable goods report - The durable goods report released this morning pointed to continued weakness in capital spending. The headline number fell 5.2% in January compared to the 2.5% fall expected by the market. The prior month's initially reported -2.6% was revised down to a 4.6% decline. Orders for non-defence capital goods excluding aircraft continued their steep declines, falling 5.4% on the month compared to the prior month's -5.8% (revised down from -3.2%). All constituents experienced declines except communications and the volatile non-defence aircraft category. Shipments of non-defence capital goods excluding aircraft were equally grim, falling 6.6% on the month with all categories posting weakness except the volatile non-defence aircraft component.
Initial jobless claims - News on the labour markets was also grim as initial jobless claims defied market expectations of a small decline to 625,000, rising to 667,000 instead. The prior week's reading was revised up to 631,000 from the initially reported 627,000.
Today's data reinforces our expectation that the U.S. economy will continue contracting through the first half of 2009. U.S. growth, however, is expected to turn positive in the second half of this year, spurred by expansionary fiscal and monetary policy. Given President Obama's recently announced plan to forestall foreclosures, we expect the housing market to improve in the coming months.
The Fed's various credit facilities are expected to ease funding pressures by reducing the cost of capital and provide liquidity to unfreeze credit markets. However, even with the mild recovery expected later this year, we anticipate the Fed will leave its target Fed funds rate in the current 0% to 0.25% range throughout this, and much of next, year in an effort to put the economy on a firmer growth path and ensure that the recovery picks up pace in 2010.
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.