NEWS / Foreign Exchange

New home sales rose by 4.8 percent

New home sales rose by 4.8 percent, reaching 770K in September up from the revised August estimate of 735K. The previous sales report on August indicated 795K homes, but it was significantly revised lower in the latest report to 735K, which is the lowest number of home new home sales observed in almost eleven years.

The September 2007 reading is 23 percent down from last year. This reading was in line with our expectations of an ongoing adjustment in the housing sector and slightly lower than our forecast of 785K for September. Factors that support resilient new homes sales relay mostly on incentives offered to buyers, but we expect those to be temporary.

Orders for durable goods decreased in September by 1.7 percent, a bit better than the previous month when the orders fell by 5.3 percent. This reading was significantly weaker than previously expected and below our forecast of 1.8 percent. However, excluding defense, durable orders increased by 0.4 percent, up from a decrease of 0.1 percent in August. Transportation had the largest drop during September which fell by 6.3 percent and following a12.3 percent decrease during July. Motor vehicles fell for two consecutive months, by 2.9 percent in September and 8.2 percent in August. Overall, excluding transportation, durable goods growth has sustained healthy levels during the past three months.

MBA mortgage applications remained at the same level observed in the previous week. Purchase applications fell by 3.1 percent while refinance applications rose by 4.0 percent for the week ending on October 19th. These readings are consistent with stable application activity, composed of mostly refinance applications.

The purchase index remained at 415 compared to 429 the week before, and the refinance index increased to 2.059 from 1.980.

The University of Michigan Consumer Sentiment index fell in October to 80.9 from 83.4 in the prior month. The index reached the lowest level since May 2006, according to the monthly survey released Friday morning by Reuters and the University of Michigan. The revised October consumer sentiment index was 80.9, down from a previous estimate of 82.0. Our previous forecast for this index was 82.6, slightly higher than the consensus estimate of 82.

We believe that consumer sentiment was lower than expected because of the disappointing construction indicators and the ongoing correction in the housing market.