Home-supply glut pushes stocks lower

27 08 2007

The slumping housing market helped drive the stock market lower today.The National Association of Realtors reported this morning that the supply of homes and condominiums for sale — measured in months’ supply — was the largest in 16 years.

The news ended whatever hope investors had for a continuation of Friday’s rally. The Dow Jones industrials finished the day down just under 57 points, 0.4%, to 13,322. The Nasdaq Composite Index was off 15 points, 0.6%, to 2,561, and the Standard & Poor’s 500 Index slipped 12.6 points, 0.9%, to 1,467.

The best news was that the declines were decidedly modest. The worst thing about the report of growing inventories of unsold homes was that it didn’t reflect the effect of the credit crunch on the housing market.

There have been increasing reports around the country that the credit crunch has stalled — if not killed — home sales in many markets, as buyers have found that mortgage financing isn’t available. That market reality won’t appear until next month when the Realtors group reports sales for August.

In July, inventory grew because sales declined. The Realtors said existing-home sales fell 2.2% in July from June to a seasonally adjusted annual rate of 5.75 million homes. That was down 9% from July 2006 and down 28% from the average for all of 2005, when sales hit 7.08 million units.

The market’s tone today was decidedly negative, with decliners ahead of gainers on the New York Stock Exchange and on Nasdaq by margins of 2.5-to-1 and 1.8-to-1, respectively.

But volume continued last week’s trend of being very light because so many investment professionals are on vacation. NYSE volume barely reached 1.1 billion shares today. Nasdaq volume was 1.3 billion shares. Both were about 60% of recent average.

Utilities and energy stocks were the weakest sectors. The Dow Jones Utilities Index ($UTIL)was off $3.2% to 483 as investors as short-term interest rates continued to rebound from lows reached in the depths of the market’s panicky sell-off. The 13-week Treasury bill yield was 4.38%, up from 4.08% on Friday.

The percentage change in the utilities index was the fourth largest of the year. The five largest percentage losses in the index have all occurred since June 1.

But the year-to-year changes were big — and look even worse if compared with data for 2005. The steepness of the declines is a big reason why analysts see more slowness for the rest of the year and through 2008.

The median sales price of a single-family home declined 1% from a year ago to $228,600. The median condo sales price actually rose 2.4% from a year ago to $230,600, mostly due to gains in the Northeast and Midwest. The median price in the West fell 3.2% to $264,500.

One analyst had a muted reaction to the housing data. “I don’t want to be too negative on these numbers; they were right in line with expectations,” Lehman Bros. economist Drew Matus said on CNBC this morning.

Matus noted that the numbers were for July, before the credit crunch really hit the markets.

Although he said that the credit crunch could just be a blip, he added that he doesn’t expect the housing market to pick up for a while: “We expect home sales to continue to decline through 2008.”

Home building shares tumbled on the news. The Philadelphia Housing Sector Index ($HGX.X) fell 2.8% to just under 169. Lennar (LEN, news, msgs) fell 4.5% to $28.56. Pulte Homes (PHM, news, msgs) was down 4.7% to $16.70.

By Charley Blaine and Elizabeth Strott, MSN Money

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