US new home sales hit levels last seen just before 2008 stock market crash

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Published: November 28, 2017 12:44:17 PM

New home sales in the United States of America in the month of October 2017 jumped to a level which was last seen in October 2007, a 10-year high.

Photo for representational purposes only. (Image: Reuters)

New home sales in the United States of America in the month of October 2017 jumped to a level which was last seen in October 2007, a 10-year high. The growth in the new home sales came at an unexpected level, beating most of the estimates by analysts. The sales surged 6.2% to a seasonally adjusted annual rate of 685,000 in October 2017 versus 645,000 in September. An economist poll by Reuters had forecast new home sales to drop by 6%.

Way back in 2007, the new home sales in the US were at peak on the back of a surge in loans and advances given to subprime borrowers. For the period between mid-2002 and late 2007, the housing sales rose at an unprecedented level which later on led to the biggest global financial crisis of 21st century so far. Many financial services institutions faced dire situations. Several of those among the biggest investment banks, including the then fourth-largest investment bank in the United States Lehman Brothers and the fifth-largest Bear Stearns, were sold for pennies or went bankrupt.

One of the biggest insurance company of United States American International Group (AIG) was also badly hit as the company insured the riskier derivative products which were based on subprime mortgages. In order to save it from collapsing, US Treasury announced that it will purchase $40 billion of AIG preferred shares, a portion of which will be used to reduce the Federal Reserve’s loan to AIG from $85 billion to $60 billion.

The United States Department of Commerce on Monday said that new-home sales last month rose to a seasonally adjusted annual rate of 685,000 which is 18.9% higher on yearly basis. This is the highest value since October 2007. “Much of the sales growth came from the Northeast and Midwest, with the South and West posting smaller increases,” Associated Press said in a report.

The average sales price of a new home rose 13.6% over the past 12 months to $400,200. Following a healthy job market with the unemployment rate of 4.1% in the US, new home buyers are hunting for houses. Later on Monday, the US stock markets settled with marginal changes, falling back from record highs marked during the intraday trade. The Dow Jones Industrial Average rose 0.1% to 23,580.78, the S&P 500 lost 0.04% to 2,601.42 while the Nasdaq Composite dropped 0.15% to 6,878.52.

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