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Weakening Economy Hurts Home Sales

By Joanne Morrison WASHINGTON (Reuters) - A slackening economy took its toll on home sales in April, dimming what had been a bright spot in the clouded U.S. economic picture, and analysts say the trend could continue for months amid a weakening labor market.

A government report on Thursday showed a huge deceleration in new single-family homes sales last month, with a 9.5 percent falloff from levels seen in March.

The Commerce Department said it was the sharpest slowing in four years. However, analysts said new measuring techniques in the latest report accounted for some of the sales decline.

Separate data showed a wilting labor market, which could further hamper the housing market over the next several months, potentially blunting the economic recovery many had expected after a series of aggressive interest rate cuts by the Federal Reserve.

"Housing is one of the factors that the markets have been hanging their hat on for a V-shaped recovery," said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C. "I think we are going to have a very modest economic recovery."

In its latest data, the Labor Department reported that more Americans either applied for or remained on the rolls for state unemployment benefits last week.

Initial claims for state jobless benefits jumped by 15,000 in the week-ended May 19 to 407,000 from a revised 392,000 in the prior week, the Labor Department said. The previous week's initial claims number was revised to an increase rather than a drop as first reported.

The closely watched four-week moving average of jobless claims, which irons out week-to-week volatility, edged down to 403,000 last week from 404,250 the week earlier.

But in an another sign the pace of hiring has indeed slowed sharply, the number of workers remaining on unemployment benefit rolls rose to 2,772,000 in the week ended May 12 -- the latest week for which figures were available -- from 2,683,000 a week earlier. That is the highest level since June 1994.

TOLL ON HOUSING DEMAND

The slipping labor market is expected to eventually take its toll on the housing market, which has been key in propping up the sagging economy.

Lower mortgage rates so far have helped boost home sales, but in recent weeks they too have been creeping up.

According to Freddie Mac's latest survey, 30-year mortgage rates this week averaged 7.20 percent, up from 7.14 percent a week earlier. However, a year ago rates on 30-year mortgages averaged 8.62 percent.

"The news for the markets is that housing is not going to be a strength for the economy over the next six months or so," Vitner said.

"You would think a weakening job market would take some toll on housing demand," predicted Dave Seiders, chief economist at the National Association of Home Builders.

The April new homes sales figures were indeed short of Wall Street's expectations, but analysts say the market right now is still relatively strong.

Joel Naroff of Naroff Economic Advisers in Holland, Pa. noted that even with the 9.5 percent drop in demand during April, new home purchases during the first four months of this year are still running more than 8 percent above last year's pace.

"The sharp drop in new home sales is a warning sign, though it is hard to complain a lot about a selling pace that, if matched for the remainder of the year, would lead to a new sales record being set," Naroff said.

With sales slowing sharply in April, the tight supply of homes on the market showed signs of easing.

The report showed the inventory of houses for sale in April rose to a seasonally adjusted annual rate of 288,000 from a revised 283,000 in March, meaning the supply of available new, single-family homes rose to 3.9 months' worth at the current sales pace, from 3.5 the previous month.

The median price of new, single-family homes edged up to $165,600 last month, from $163,600 in March.

Regionally, the South saw the biggest slowing in sales with a 13.1 percent drop-off in April from the previous month. Sales in the Midwest slowed by 10.9 percent and by 6.3 percent in the Northeast, while edging down 1.4 percent in West.

Copyright 2001 Reuters News Service

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-- Martin Thompson (mthom1927@aol.com), May 24, 2001