INSTANT VIEW: September home sales fall on slack demand

NEW YORK (Reuters) - Sales of newly built U.S. single-family homes unexpectedly tumbled 3.6 percent in September in their first drop since March, but the inventory of new homes available at the end of the month shrank to the smallest in 27 years, government data showed on Wednesday.

KEY POINTS: * Sales of newly built U.S. single-family homes unexpectedly tumbled 3.6 percent in September in their first drop since March, but the inventory of new homes available at the end of the month shrank to the smallest in 27 years, government data showed on Wednesday. * September single-family home sales totaled 402,000 units at an annual pace. Analysts polled by Reuters had expected new home sales to rise to a 440,000 unit annual pace from a revised 417,000 units in August, which was originally reported as 429,000 units. * The median sales price rose in September to $204,800 from $199,900, while the average sales price rose to $282,600 from $256,500.

COMMENTS:

BOB WALTERS, CHIEF ECONOMIST, QUICKEN LOANS, LIVONIA, MICHIGAN:

"Today's report shows that the supply of new homes is still very high, and those homes are staying on the market for more than a year before being sold. The home buyer tax credit, historically low rates and substantial price reductions will help reduce these inventories, but it's going to take a while."

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:

"Some of the previous increase has been due to the federal tax credit for first-time home-buyers. Because transactions must be closed by the end of November in order to qualify for this credit, new home sales, which reflect contract signings, may have declined because the transaction could not be completed in time. Although the inventory of unsold homes is falling, there is still a modest overhang of unsold homes at the current sales rate. This inventory overhang and mounting foreclosures are still pushing home prices down. The new home market is still quite weak but the recent data suggests that a bottom in sales has been reached."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO

"It was pretty bleak. Obviously we are seeing on the currency side we are seeing all the risk currencies like the euro, pound, Aussie, all drop off pretty rapidly. Should put a bit of weight on overall equities as well, slightly benefiting the U.S. dollar.

"After blowing out existing home sales, which are still about 80 percent of the market, it would have been nice to follow it up with some positive new home sales as well. The tax credit probably isn't as effective in the new home sales because a lot of first time buyers are probably not buying new homes, they are buying the existing market, so it will probably help there more. But to see it drop off by 3.6 percent, that just doesn't bode well moving forward."

"It's been an inventory thing, we've been able to start to suck up some of the inventory, but this now looks like we are going to be in this awhile. I've got to say I was pretty shocked when I saw that negative 3.6 percent pop across my terminal here. I expected perhaps a slight dip maybe, but to drop down to just barely over the 400,000 mark is not a positive sign. Particularly with so much depending on it when you look at new home sales - if they can sell them they can build more which puts people back to work and that whole trickle down effect on home sales - if you buy a house you have to furnish it. The trickle-down on a new home is massive and when you see this big a reduction it just means everything else is slowing down as well."

CRAIG THOMAS, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH:

"They are disappointing. The existing home sales looked quite good and you would expect that new homes sales would follow suit and they just haven't. That, combined with a disappointing durable goods indicator and lower-than-expected mortgage applications are making for kind of a humdrum Wednesday.

"However, one month's data does not tip over the apple cart. We do have four months of house price gains now, we have reasonable new home construction which means we are slowly working our way through excess supply, we have rates that are reasonable, mortgage markets are liquid and we have a lot of good economic indicators that should eventually make households feel better. So I don't think that we have derailed.

"That having been said, we do seem to be at a little bit of a plateau right now, whether it is equities or confidence or home sales -- we do seem to be looking for the next variable to push us forward."

ADAM YORK, ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:

"This was a big disappointment and it was obviously lower than what everyone had expected. Added to that the downward revisions for previous months, and you put it all together and this report was universally disappointing. The rise in the Midwest may have been weather-related, but that is hard to tell. Obviously without that gain the number would be much lower. It is unknown how much the looming expiration of the first-time home buyer tax credit may have played a role, but obviously you cannot build and sell a house over the span of a few months. New homes sales have more of an impact on GDP than existing home sales, so this overall does not bode well for the economy as well. Nevertheless, we do not expect to return to the lows seen in the first-half of this year."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The market will treat this as a soft report, but I would not treat it as a soft report at all. There are some distortions because of the new homebuyer tax credit, but we can say housing sales have bottomed. In the September report, the inventory fell 10,000 units and is now historically quite low.

"Housing market practitioners tend to look at the months' supply and say 7-1/2 months is a lot lower than eleven months which was the high a year ago, but that is still too high relative to the four to five months that characterized a good housing market.

"But when sales improve, the months' supply will plummet and there will be too little inventory out there. So both in the absolute and relative sense, inventories of new homes look very good.

"Finally, as we know from yesterday's Case-Shiller report, prices are actually rising. That may be overstated by the impact of the new homebuyer tax credit, but the market is certainly mending on all important fronts.

"Some are afraid housing will fade in 2010. That will not happen unless the labor market fades or does not improve. Housing will not collapse without a collapse in the labor market."

JOE MANIMBO, CURRENCY TRADER, TRAVELEX GLOBAL BUSINESS PAYMENTS, WASHINGTON:

"The number was surprisingly weak. I think that is going to add to the trend that we've seen recently where investors are questioning the robust pace of economic recovery going forward. That has benefited the dollar and helped to revive its safe-haven appeal."

PETER LEWIS, FUND MANAGER, MURPHY CAPITAL MANAGEMENT, GLADSTONE, NEW JERSEY:

"What we think we're going to see is mixed months of up and down numbers, so it doesn't surprise us to see it came in below consensus. We're going to see pockets of strength some months, then weakness in others. People were more hopeful that we'd see stabilization quicker, and we're heading in that direction, but it's going to take some time.

"We think the housing market is going to stabilize, but not until the job market improves. No one is willing to go out on a limb and buy a home not knowing if their job is going to be there in three or six months. Its also difficult to get a home now, since you need a stellar credit report and a lot of people are requiring 20 percent down. That's going to keep a lot of people from buying, including people who would've bought homes a few years ago."

MARK BONHARD, INVESTMENT ADVISOR REPRESENTATIVE, DAWSON WEALTH MANAGEMENT, CLEVELAND, OHIO:

"The report is a little surprising. However, I wouldn't read too much into a one-month setback."

"One month is obviously not a trend and I think there is plenty of evidence that things are turning around. I still believe the economy has hit bottom and is on the way up, but it will be a long, slow process."

MARKET REACTION: STOCKS: U.S. stock indexes extended losses. BONDS: U.S. Treasury debt prices added to gains. DOLLAR: U.S. dollar rose against the euro.