Marc Pado Comments: Slide In House Sales Sends Wall Street Lower - International Herald Tribune
International Herald Tribune, September 25, 2009
The housing market, a source of so many of the United States' economic problems, was causing more headaches for Wall Street on Thursday.
Stocks had been heading for higher ground in early trading, but then a real estate group reported that sales of previously owned homes had fallen 2.7 percent in August. The figures disappointed economists and investors who had been expecting a fifth straight month of gains, and shares skidded lower.
By midafternoon, the Dow Jones industrial average was down 0.5 percent, at 9699.13, and the broader Standard & Poor's 500-stock index was off 1 percent, at 1,049.99.
The selling ran through all sectors of the market. Big banks and regional lenders that offer mortgages and construction loans were down. Shares of major home builders like Lennar and D.R. Horton sank, as did big industrial companies like Caterpillar and manufacturers that make the materials used to build homes and offices.
European markets also finished lower. In London, the FTSE 100 was off 1.2 percent at the close, to 5,079.27. In Paris, the CAC 40 was down 1.7 percent, at 3,758.36. In Frankfurt, the DAX also closed down 1.7 percent, at 5,605.21.
The FTSE Eurofirst 300 index of top European shares ended down 1.9 percent, at 987.37 points, the lowest closing level in more than two weeks.
The dip in sales of existing homes reflected broader worries about how the economy would perform as a panoply of support programs from the government slowly wind down.
A tax credit of up to $8,000 for first-time buyers has driven home sales higher this summer, and some investors and real estate groups are worried that home sales will pull back once the credit expires at the end of November.
Car dealers raised similar concerns about whether their sales would hold up after the conclusion of the government's popular cash-for-clunkers rebate program.
On Wednesday, the Federal Reserve said it would gradually slow down a $1.45 trillion program to buy mortgage-backed securities, which aims to keep interest rates low, stretching it out through the end of March.
After a summer of swiftly striding higher, Wall Street has stumbled this week.
Stocks have slipped for three trading sessions since Monday, and analysts said some investors appeared ready to unwind their recent gains as they look ahead to the third-quarter earnings season.
With so much uncertainty swirling around whether corporate profits will continue to improve, some investors used the weaker housing numbers as a chance to take some profits.
"It's been a heck of a rally," said Marc Pado, market strategist at Cantor Fitzgerald. "You've got to remember, in the bigger picture, we're only pulling back to highs of last month."
U.S. home sales have been edging higher over the past few months as lower prices, affordable mortgage rates and the tax credit for first-time home buyers drew buyers back to the market.
Housing and real estate groups like the National Association of Realtors have called on Congress to extend or expand the tax credit for first-time buyers, saying that sales could slide back once it expires at the end of November. While the program has helped to drive sales higher this summer, some economists say its effects are waning because most interested buyers have already taken advantage of the credit.
