WASHINGTON (Reuters) - Existing home sales fell by a record amount last month as the recession picked up pace although a collapse in gasoline prices gave consumer sentiment a rare lift, data on Tuesday showed.
“The bottom line: Bah humbug. Recession, recession, recession,” said Jennifer Lee, an economist with BMO Capital Markets in Toronto.
The solitary good news came from the Reuters/University of Michigan Surveys of Consumers, which rose to 60.1 in December from November’s reading of 55.3 due to lower energy and retail prices after stores made radical markdowns to tempt shoppers.
This trend was expected to continue, with the report noting more consumers expect price declines than in any other survey since 1960, pointing toward deflation fears that have prompted the Federal Reserve to cut interest rates to almost zero.
The U.S. recession began last December and data from the Commerce Department confirmed analyst expectations that output shrank at an annual rate of 0.5 percent in the third quarter as consumption and investment slumped.
Conditions are expected to get much worse before they get better, with the economy predicted to shrink by as much as 6 percent in the fourth quarter and keep declining for the next six months before a tepid recovery takes hold later in 2009.
“We are in the midst of the worst recession in the post-war period, even factoring in a massive stimulus program,” said Nariman Behravesh, chief economist at IHS Global Insight.
President-elect Barack Obama is expected to unleash a massive government spending program when he takes office next month to reinforce the powerful policy boost from the Fed, which has also pumped over $1 trillion into credit markets.
The Richmond Federal Reserve’s manufacturing survey echoed the gloom, falling to -55 in December from -38 the previous month. Its services sector survey declined 8 points to -30.
Housing is at the heart of the problem and existing home sales plunged a record 8.6 percent in November to a 4.49 million-unit annual rate, while a separate new homes sales report showed they retreated at a slower 2.9 percent pace.
The median existing home price fell 13.2 percent on an annual basis, down for a fifth straight month to $181,300.
It was the largest drop since the current data series began in 1968 and probably the largest since the Great Depression, said Lawrence Yun, the chief economist for the National Association of Realtors.
Economists say falling house prices will improve affordability and help work off the overhang of unsold homes accumulated since the property market nosedived last year.
Inventories of new homes declined 7 percent to 374,000 in November but actually increased 1.4 percent for existing single family homes, to 3.550 million.
“Despite the overall softening in sales, there has been a solid trend of rising activity in California, Nevada, Arizona, and Florida, in areas where bargain hunters are taking advantage of substantially discounted prices,” said Michelle Girard, analyst at RBS Greenwich Capital.
Separate weekly reports on chain store sales offered conflicting signs on holiday shopping activity.
The International Council of Shopping Centers and Goldman Sachs said their chain store sales index rose 2.6 percent in the week ended December 20, although the year-on-year decline deepened to 0.6 percent.
In contrast, the Johnson Redbook sales index showed a month-to-date decline of 1.1 percent, with sales for the December 20 week 1 percent below their year-ago level.
Additional reporting by Doug Palmer in Washington and Chris Reese in New York; Editing by Andrea Ricci