So much for the spring selling season.
New-home sales fell sharply in March far more than expected, to the lowest level in nearly seventeen years, the papers report.
Sales fell 8.5 percent (seasonally adjusted) from a month earlier, and the inventory of unsold homes—a key indicator of the future health of the market—hit the highest point in twenty-seven years, The New York Times says on C4. Year over year sales plummeted thirty-seven percent, say Bloomberg and The Wall Street Journal, a number the Times should give us but doesn’t. The Commerce Department sharply lowered its February sales number to -5.3 percent from an earlier estimate of -1.8 percent, the Times says.
The bad news doesn’t end there, despite all the rumblings you may have heard recently about the market hitting bottom soon. It would take eleven months to run through the existing inventory at current sales levels (up from 10.2 in February), something the Journal explicitly says means “the bottom of the market doesn’t appear in sight” and Bloomberg says indicates “the housing recession is far from over.”
Prices fell more than thirteen percent from a year ago, the biggest drop in thirty-seven years, say Bloomberg and the Financial Times, and something the NYT says “could discourage prospective buyers from re-entering the market.” That’s a strange statement and perhaps a mistake. Lower prices, or course, make people more likely to buy. At least it had the number, unlike the Journal’s A3 story (cheers to Bloomberg and the FT for having both the price decline and year-over-year sales numbers.)
Down across the board
Sales were down in all the nation’s regions, but in the Northeast they were off an incredible sixty-five percent. Barron’s calls the overall news “perhaps the most alarming yet of the housing recession.” We don’t see anyone report that this number is particularly bad as it comes on top of a twenty-four percent decline a year ago from March 2006, when 1.12 million new homes were sold. Our quick calculation says new home sales have fallen fifty-three percent in two years (to 526,000 last month).
While the sales data are subject to monthly volatility, “this is just gruesome and leaves no other conclusion than that the downturn in the U.S. housing market is still in full swing,” ING Bank economist Dimitry Fleming wrote in a research note.
The WSJ’s report says the housing data, along with durable-goods orders, signal that the economic downturn may be “lengthy,” albeit with positive but anemic growth. Durable goods orders edged down 0.3 percent in March, but were up 1.2 percent excluding defense and transportation, signaling some strength in parts of the economy.
An unemployment surprise
Offsetting the bad housing news somewhat, unemployment took a tumble last week, falling to 342,000 new claims from 375,000, something Bloomberg says was unexpected.
Businesses are trying to assess how deep the downturn may be before they fire additional workers, and some firms are retaining employees to fill a surge in export orders. Still, lower home values, higher fuel bills and fewer jobs make it more likely consumers will restrain their spending, which accounts for two-thirds of the economy.
Economists expect the U.S. to shed 70,000 jobs in April, the WSJ says.
Adding insult to injury in home land, the Journal says local governments are raising property taxes to make up for budget shortfalls.
Uncle Ben’s converted loans
The WSJ says on A3 that Wall Street borrowed less from the Fed’s new direct-lending program for investment banks, but commercial banks borrowed “sharply” more, something Bloomberg calls a “sign of persisting funding strains in money markets.” The average borrowed every day was the highest since the 9/11 attacks.
FAA in the tank
The NYT and WSJ report that the Federal Aviation Administration covered up a “series” of near-misses caused by Dallas air-traffic controllers, who blamed their mistakes on pilots. The news comes even though the Dallas area had already been caught doing similar things several years earlier.
We like how the Journal calls the spade—it flat says in its lede and headline that the FAA “covered up” the problems and says the previous problems had been a “conspiracy.” The Journal says the whistleblower says she was “physically harassed” by colleagues for exposing their misdeeds.
The Journal reporter here, Christopher Conkey, has done admirable work throughout this FAA story and gives us the context:
The conspiracy, and the agency’s failure to eliminate it after the inspector general initially reported the problem, are increasing pressure on FAA officials at a time when they already are under enormous criticism over regulatory lapses relating to airline maintenance.
Multiple federal probes are focusing on how Southwest Airlines Co. was allowed to fly jets that were overdue for safety inspections. Many lawmakers and critics also say the agency overreacted to the Southwest disclosure by forcing AMR Corp.’s American Airlines to cancel thousands of flights this month over a technicality that didn’t pose a serious safety risk.
And runways, too
The Times in a separate A1 story reports that airline experts are more concerned about runway collisions than any of the other recently raised problems.
The paper says the “technology gap” between systems used in the air and on the ground is substantial, and that even though the National Transportation Safety Board has been urgently calling for upgrades for eighteen years, it still rates the FAA’s response as “unacceptable.”
There were fifteen major so-called runway incursions from September to March, and the Times says they’re unnecessary.
Runway collisions are caused almost entirely by human error. But they are still mostly preventable, because the risk could be substantially reduced with existing technology, ranging from paint on the pavement to electronic warning systems.
Some of the more sophisticated electronic systems are commercially available, but are not required by the F.A.A. And the most recent decision by the agency about a new generation of equipment for navigation and surveillance appears to delay the widespread adoption of in-cockpit warning technology by at least more than a decade.
The O.B’s Q.O.D.
And here’s our Fix This Now Quote of the Day:
“If you’ve got a G.P.S. in your car, you have infinitely more detailed information about where you are than in the cockpit of an airplane on the ground at Kennedy,” (said the former head of the pilot’s union).
Merrill Lynch, whose CEO has claimed it won’t need to raise more capital, is in talks with private-equity firm TPG to give it more capital if it needs it, the FT scoops on page one.
The two talked in the fall before Merrill was rescued by foreign investment pools, but TPG insisted on a board seat for a sizeable capital infusion, unlike the overseas investors, which basically handed Merrill $12 billion.
The Journal takes a nice look at the long-term problems preventing a solution to our reliance on foreign oil (and oil in general, for that matter).
It leads with a Chuck Berry lyric about his V-8 Ford and says Bush’s admirably aggressive fuel-efficiency plan would force the average car to have the mileage of a Ford Focus subcompact, rather than a V-6 Ford Taurus, as is the case today.
History suggests that is a leap of faith, indeed, and that ending what Mr. Bush called our “addiction to oil” will require a more-fundamental transformation of the American lifestyle
Starting in 1975, after the first of the oil shocks that made life miserable in that decade, car makers have roughly doubled the average mileage of new cars.
However, the number of miles driven more than doubled from 1975 through 2006. Total gasoline consumption rose by 61% during the same period and 17% on a per-capita basis.
Nothing really new here, but it’s a good analysis—and a good read.
Microsoft bucked the positive tech trend. Its profits fell eleven percent as sales slowed from a year ago when it was launching its troubled Vista operating system, but it issued a soft forecast that disappointed investors and its shares fell five percent after hours, the WSJ says on B3. The NYT, though, says the company provided an “optimistic outlook.”
We’ll go with the Journal on this one—the Times bizarrely attributes the significant after-hours decline to Microsoft not spelling out what exactly it will do regarding its $44 billion bid for Yahoo, which isn’t cooperating.
The software giant says it hasn’t seen much of a consumer slowdown yet, though it expects one to come.
Headline of the Day, from the Journal’s Marketplace cover: “Mozilo’s Pay Plunged 79%; He Still Made $10.8 Million”.
Mozilo, of course, is Angelo Mozilo, the Countrywide CEO known for his leathery tan and his subprime lending.
But the Journal’s story then goes on to say he also raked in $121.5 million from exercising stock-options, which last we knew was considered part of total compensation.
The Securities and Exchange Commission accused a trader of spreading false rumors in order to sell a stock short and make a quick profit. ADS stock fell seventeen percent on the rumor and the trader made $25,000.
The FT says the case will increase pressure to investigate whether false rumors helped bring down Bear Stearns. The WSJ says it will “inflame critics of short-selling” and put a spotlight on “rumormongering.”
Many company executives, especially some Wall Street CEOs, have been complaining bitterly that short sellers are profiting from spreading false rumors about major firms, essentially manipulating the market. These executives and some members of Congress have argued that this kind of behavior is a problem the SEC needs to address more aggressively.
The trader settled the case and is barred from working for a brokerage.
Shelved in Seattle
The WSJ takes an A1 look at the state of commercial real-estate mega-projects across the country and finds that many are being scaled back or scrapped altogether. The latest is a thirteen-acre prime land parcel in Seattle that’s been yanked off the market.
The Seattle project joins other projects in New York, Phoenix, Atlanta and Las Vegas that have been shelved, scaled back or beset by financial problems in recent months. Many city officials hoped they would provide jobs and economic activity that could help make up for a housing-market downturn that still hasn’t reached bottom.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.