Existing-Home Sales Show Strength, But Prices Keep Falling

Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3% last month, the biggest one-month increase since a 3.3% increase in January 2005, a time when housing was roaring toward the peak of its five-year boom.

The median price of an existing home sold in January dropped to $210,600, a decline of 3.1% from a year ago. It marked the sixth straight month that the median price has been down compared with a year ago. The January decline was the third-biggest drop in history.

In other encouraging news, the Conference Board, a private research group, said that consumer confidence rose in February to its highest level in more than five years.

Optimism About Jobs

The New York-based group said that its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects.

Analysts said that the decline in home prices was actually an encouraging sign that home sellers are starting to adjust their asking-price down and this should help speed the correction in housing.

"For the last several months I have been hemming and hawing on whether we have reached bottom," said David Lereah, chief economist for the Realtors. He said that the January report was an encouraging sign that the bottom for sales activity was reached last September with sales expected to stabilize this year.

But he cautioned that the warm weather in December boosted home closing in January, the activity that is tracked in the Realtors report. He said there could be a bit of a payback in coming months.

By region of the country, sales rose the most in the West, up 5.6%, followed by gains of 4.8% in the Midwest and 2% in the South. Sales in the Northeast were unchanged in January compared to December.

Durable Orders Plunge

In other economic news, the Commerce Department reported that orders to factories for big-ticket manufactured goods plunged 7.8% in January, the largest decline since October and more than double what analysts had been expecting.

The decline in durable goods was led by an 18% plunge in transportation orders, reflecting a big decline in orders for commercial jetliners and continued weakness in auto manufacturing.

Demand for commercial aircraft fell by 60.3% after having soared by 31.3% the previous month. Boeing took orders for just 13 planes in January after having seen orders soar to 212 in December. Aircraft orders are extremely volatile from month to month.

But there also was weakness in a number of other areas from heavy machinery to computers. Demand for motor vehicles and parts falling by 5.1%. The auto sector has been particularly hard hit as American car manufacturers are struggling to compete with foreign rivals.

Demand for non-defense capital goods orders fell by a record 19.9% in January. This category is closely watched for signals it can send about the plans businesses have to expand and modernize their operations. Business investment has been slowing in recent months.

The 7.8% January overall decline left orders at $203.9 billion on a seasonally adjusted basis. Analysts had been expecting a much smaller drop of around 3%.