WASHINGTON — Sales of new homes plunged in August from the previous month and prices posted their biggest year-over-year drop in nearly 37 years, the Commerce Department said Thursday, underlining the depth of problems facing the housing sector.
A separate report from the Labor Department showing that new claims for unemployment insurance fell a lower-than-expected 15,000 last week to 298,000 implied that the drag from housing was not spilling into labor markets. Even so, speculation flared that the Federal Reserve would have to cut interest rates further to counter an economic slowdown.
"For the Fed, the question is whether this is worse than they really expected and whether it might well be a reason for them to do more preemptive easing," economist Pierre Ellis at Decision Economics in New York said of the home sales decline.
Sales of new single-family homes dropped 8.3% last month from July to an annual rate of 795,000 -- the slowest sales pace in seven years. The median sale price fell 7.5% from August 2006 to $225,700, the biggest drop in percentage terms since 1970.
Not only were the home sales figures worse than the 830,000-a-year pace forecast by analysts, but they also largely reflect conditions before mid-August market turmoil set in that has led to stiffer lending standards for future loans.
A third report from the Commerce Department showed that the U.S. economy grew at a downwardly revised but still brisk 3.8% annual rate in the second quarter, a pace that analysts do not expect to be sustained in the second half of the year.
The report on gross domestic product was a final revision of second-quarter performance, marked down from a 4% growth rate published a month ago because imports were stronger than the government had previously estimated.
The home sales report was the most striking one for financial market participants, who said the slow drawdown in inventories of unsold homes meant the drag on overall economic activity might be prolonged.
The Fed cut official interest rates by half a percentage point Sept. 18, aiming to forestall some of the effect of a housing-led credit squeeze, which policymakers fear will take a toll on both U.S. and global expansion.
"Having moved so sharply already, they're going to want to finish what they've started," Ellis said about the Fed.
