Sales of new US homes plunged 10.5 per cent last month, prices fell and the stock of unsold homes hit its highest level in 10 years, providing the clearest indications yet that the red-hot housing market may be cooling.
A big slowdown could prompt consumers to cut spending and boost savings. Such a shift could help reduce the current account deficit but at the cost of significantly slower growth.
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New home sales slid to 1.08m, the fourth consecutive decline, and the price of new homes fell 3 per cent from a year ago. With a flood of new properties coming on to the market, at the present pace of sales, it will take 6.3 months to clear the backlog.
Economists have long been expecting a slowdown and some have predicted declines in prices. "New home sales are softening fast," said Celia Chen, a housing expert at Economy.com. "Affordability has declined to a near 15-year low. Rising mortgage interest rates and rising house prices are constraining demand."
Ian Morris, economist at HSBC, said: "Over the next 12 months we suspect a hard landing is more likely." But there had been regional factors in the slowdown. Sales fell in the west but rose in the midwest and north-east.
The rising stock of unsold houses could lower prices still further. Research at HSBC suggests that seven months' supply of unsold housing will mean a soft landing for the market. But if the figure rises towards nine months it will be a hard landing.
Copyright 2006 Financial Times

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Santa Fe Bank for Insurance Division Donated to Nonprofit Group Founded by Insurance Superintendent
March 21, 2006
The Santa Fe, N.M., bank that acts as a depository for the state Insurance Division has been a generous contributor to an organization founded by the state insurance superintendent.
The Albuquerque Journal reported in a copyright story Sunday that Century Bank of Santa Fe has donated more than $124,000 to Con Alma since winning the insurance depository contract in 2003. The nonprofit organization was founded in late 2001 by Eric Serna, who signed off on Century's contract.
The bank, partly owned by Santa Fe businessman Jerry Peters, oversees about $400 million in state insurance deposits and collects almost $800,000 in annual fees for its services.
The only banks that made major donations through 2004 were the ones that held the contract, according to Internal Revenue Service reports filed by Con Alma.
Bryan J. Chippeaux, chairman and CEO of Century Bank, said the bank contributed to Con Alma "to make a strong statement about our commitment to Santa Fe and Espanola."
Robert Desiderio, executive director of Con Alma, said the contributions had nothing to do with the state contract.
"We tell all the people with whom we do business, and it's normal, that we expect them to make a contribution," he said. "The contribution they give is dependent up on their desires. And yes, Mr. Peters is a large donor, a very large donor. I cannot deny that."
Peters' other businesses also contributed at least $3,000 to the re-election campaign of former state Treasurer Robert Vigil, whose signature was required for the contract's approval.
In 2005, the bank received a two-year contract extension and won a fee increase that exceeded the maximum set by the state Insurance Code. Serna and Vigil approved those.
Peters, in a written reply, said he never has made contributions linked to the bank's business. He said the contract award did not involve any hidden deals or understandings.
"I want to stress in the strongest possible terms, that nothing occurred that could be viewed as improper," he wrote.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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