New-home sales dip unexpectedly

WASHINGTON (AP) — The number of buyers snapping up new homes dipped unexpectedly last month as the effects of a temporary tax credit for first-time owners started to wear off.

The 3.6 percent drop in September’s new-home sales, reported by the Commerce Department on Wednesday, was the first decline since March and a distinct sign of weakness in a market that had rebounded strongly over the summer.

The report surprised Wall Street. The Dow Jones industrial average lost 119 points, or 1.2 percent. Home-builder stocks also tumbled with Hovnanian Enterprises leading the way with a 9 percent drop, or 38 cents, to $3.92.

On the positive side, the government reported that orders to U.S. factories for big-ticket manufactured goods rose 1 percent in September as demand for machinery offset weakness in commercial aircraft and autos.

Analysts expect that the overall economy, as measured by gross domestic production, grew at an annual rate of 3.3 percent in the July-September quarter after contracting for a record four straight quarters. The third-quarter GDP report is due today.

The drop in new-home sales could help the lobbying campaign of real estate agents and homebuilders. They want Congress to extend the tax credit of up to $8,000 for first-time buyers.

“Seeing a number like this today, I think a lot of lawmakers will be pounding their fists on the table,” said Jennifer Lee, an economist with BMO Capital Markets.

Even builders of more upscale homes that at are out of reach for many first-time buyers have felt the impact of the looming deadline. High-end builders market to move-up buyers who need to sell before they can buy a new house.

“The fact that the first-time home-buyer tax credit runs out is hurting,” said Bob Mitchell, chief executive of Rockville, Md.-based builder Mitchell & Best, who has gone from selling 80 to 100 homes annually to around 30 this year. Still, he noted, “we’re at least selling something.”

Critics, however, say many buyers would have made their purchases anyway and call the credit an unnecessary subsidy for people who don’t need it.

New-home sales fell to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.

New home sales, however, are still up 22 percent from the bottom in January, and analysts don’t expect them to recede too far.

“We’re starting to climb out of a very deep, dark cave,” said Adam York, an economist with Wells Fargo Securities. “It’s going to be a long process.”

The report provides a timely view of the housing market because it reflects signed contracts to buy homes, rather than completed sales. It’s taken longer this year to finish deals because of delays in getting approved for a mortgage and having the property appraised.