May 5, 2009 in Business

Home sales show gains

Economists say new numbers give reason to hope
Associated Press
 
Charlie Neibergall photo

T.J. Fazio walks down a flight of stairs on a new home construction site in West Des Moines, Iowa.
(Full-size photo)(All photos)

WASHINGTON – Construction spending and pending home sales both fared better than expected in March. The news pushed stock prices higher.

The Commerce Department said construction spending increased 0.3 percent in March, the best showing since a similar rise last September. Economists surveyed by Thomson Reuters had expected spending to drop 1.5 percent for a sixth-straight monthly decline.

Meanwhile, the National Association of Realtors said its index of pending home sales rose 3.2 percent to 84.6 in March, the second monthly increase after it hit a record low in January. The pending sales index also is 1.1 percent above last year’s levels. Typically, there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

Economists said the data offered faint glimmers of hope that construction activity may be stabilizing, although at very low levels.

“Things certainly look a bit less bad than in the dark days at the turn of the year,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a research note.

Economists cautioned that the construction rebound could be temporary, given all the problems facing the industry as a severe financial crisis has made it hard for builders to obtain financing.

Spending on private residential projects fell 4.2 percent in March, the latest in a series of declines that began three years ago when the housing bubble burst with disastrous effects for the home industry and the overall economy.

Nonresidential construction rose 2.7 percent in March, the biggest advance in nine months. It marked the second straight increase and was led by gains in office construction, hotels and power plants.

The various changes left total construction spending at a seasonally adjusted annual rate of $969.7 billion in March. Even with the unexpected increase, building activity is 11.1 percent below year-ago levels, reflecting the country’s steep recession.

Economists are more hopeful that the three-year slide in housing could be nearing a bottom, although they don’t see a significant rebound for some time.

New home sales have plunged 74 percent from their peak in July 2005. Sales of new homes hit a record low in January, posted an increase in February and then edged down 0.6 percent in March to a seasonally adjusted annual rate of 356,000 units.

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