US new home sales plunged in April to their lowest in two years, even as prices continued to climb, according to government data released Tuesday, as would-be buyers felt the heat of soaring inflation and rising interest rates.
Home sales have been booming throughout the Covid-19, but with inflation at its highest since the early 1980s, the Federal Reserve has begun raising interest rates aggressively to cool the economy, which is pushing borrowing costs higher.
Sales of new single-family homes fell 16.6 percent in April to an annual rate of 591,000, seasonally adjusted, the Commerce Department reported, the lowest rate since April 2020.
The decline was far worse than analysts had projected, and compounded by the downward revision to the sales figures for March.
“It’s pretty scary,” said Gregory Daco, chief economist at Ernst & Young.
“I was expecting a decline, but not this steep a drop,” he told AFP, noting that new home sales had slowed for the fourth consecutive month.
All regions saw sales fall sharply, though the South saw the steepest decline.
Last month’s sales pace was a 26.9 percent drop compared to April 2021, the report said.
However, even amid higher borrowing costs that are cooling demand from homebuyers, prices continued to rise in April, reaching a median of $450,600 from $435,000 in the prior month.
The popularity of remote work as well as increased household savings during the pandemic prompted many families to move out of congested urban areas and purchase larger houses or vacation homes.
The surge in demand sent prices soaring as potential homebuyers competed to snap up properties — even paying cash — in an increasingly tight market hindered by global supply chain snarls that held back new construction.
– ‘Recession warning’ –
Home sales are a key driver of activity, spurring sales of many categories of goods, including furniture and appliances, so a slowdown could have broader effects on the economy, economists say.
“The April drop for new home sales is a clear recession warning,” said Robert Dietz, chief economist at the National Association of Home Builders (NAHB).
“While the nation needs additional housing, home sales are slackening as tightening monetary policy continues to put upward pressure on mortgage rates and supply chain disruptions raise construction costs.”
As the sales pace dropped sharply, the supply of new homes on the market rose last month, jumping to a nine months’ supply from 6.9 months in April, the report said.
Existing home sales have also slowed over the past several months, falling 2.4 percent in April, the National Association of Realtors (NAR) reported last week.
The average rate on a 30-year, fixed-rate mortgage was 4.98 percent in April, up from 4.17 percent in March, and far above the 2021 average of 2.96 percent, according to Freddie Mac.
“Higher mortgage rates and lofty prices are making housing more expensive, particularly for first-time buyers,” said Oren Klachkin, the lead US economist at Oxford Economics. “Looking ahead, income gains won’t keep up with rising borrowing costs and elevated home prices, pushing down affordability and pressuring home sales.”
“Builders will add to the housing stock, but not sufficiently enough to meaningfully tilt housing market dynamics in favor of buyers.”
Ryanair, Brussels Airlines strikes disrupt Europe air travel
Strikes by staff at Ryanair and Brussels Airlines over pay and working conditions on Friday forced the cancelation of dozens of flights in Europe as the busy summer travel season gets underway.
The strikes are adding more headaches to passengers and the aviation sector, which has struggled with staff shortages as it struggle to recruit people after massive layoffs during the Covid pandemic.
Ryanair cabin crew unions in Spain, Portugal and Belgium called a three-day strike starting on Friday, and in Italy and France on Saturday.
The biggest impact was felt in Belgium, where the work stoppage led Europe’s biggest budget airline to cancel 127 flights to and from Charleroi airport near Brussels between Friday and Sunday.
Ryanair could only guarantee 30-40 percent of its scheduled flights at the airport, said a spokeswoman for Brussels South Charleroi Airport.
The situation in Belgium was further complicated by a three-day strike by staff at Brussels Airlines, a unit of German airline Lufthansa, which began on Thursday.
The company has cancelled 315 flights to and from Brussels’ international airport during the three-day strike.
The impact of the Ryanair strike was more limited in Portugal, where only two flights we cancelled on Friday morning, according to the SNPVAC union behind the walkout in the country.
It expects the strike to gain force later in the day.
In Spain, where Ryanair employs 1,900 people, no flights we cancelled except those heading to Belgium.
“We didn’t even know there was a strike…we didn’t have any problem at all,” said Manuel Carrion, a Spanish passenger with a Ryanair flight at Madrid airport.
Spain’s transport ministry on Thursday ordered Ryanair to operate 73 percent to 82 percent of flights over the strike period to maintain minimum services.
It argued there needs to be a balance between the “right to strike” and the “interest of travellers”.
– Threats –
But unions said Ryanair had gone beyond what was required and forced staff to maintain 100 percent of flights. Unions said they would take Ryanair to court as a result.
“The company informed staff that all flights were subject to the minimum service, and threated them with disciplinary action,” Ernesto Iglesias of local USO told reporters at Madrid airport.
The airline was not “respecting the law,” he added.
Ryanair cabin crew unions in Spain have called another strike from June 30 to July 2.
A strike on the weekend of June 12 and 13 already prompted the cancellation of about 40 Ryanair flights in France, or about a quarter of the total.
Ryanair boss Michael O’Leary has been dismissive of the strikes, saying earlier this month that most of the company’s flights “will continue to operate even if there is a strike in Spain by some Mickey Mouse union or if the Belgian cabin crew unions want to go on strike.”
– ‘Pushed to the brink’ –
Ryanair’s low-cost rival easyJet also faces nine days of strikes on different days in July at the Barcelona, Malaga and Palma de Mallorca airports.
British Airways workers at London’s Heathrow airport have voted to strike over pay as the cost-of-living crisis worsens in the UK, though no dates were set yet.
The strikes come as air travel has rebounded since Covid-19 restrictions have been lifted.
But the staff shortages have forced airlines to cancel flights, with German carrier Lufthansa cancelling more than 3,000 of them during the summer holidays.
On Monday, the European Transport Workers’ Federation called “on passengers not to blame the workers for the disasters in the airports, the cancelled flights, the long queues and longer time for check-ins, and lost luggage or delays caused by decades of corporate greed and a removal of decent jobs in the sector.”
The Federation said it expects “the chaos the aviation sector is currently facing will only grow over the summer as workers are pushed to the brink.”
European stocks, oil prices rebound
European stock markets and oil prices recovered Friday following heavy losses this week on fears that interest rate hikes aimed at cooling decades-high inflation will spark a global recession.
London stocks rallied 1.3 percent around midday with investors brushing aside news of bruising defeats for Britain’s ruling Conservatives in by-elections on Thursday.
The pound firmed against the dollar and euro, despite data showing a drop in UK retail sales volumes as inflation soars.
Paris stocks jumped 1.8 percent in eurozone trade, while Frankfurt rose 0.8 percent with gains tempered by news of the worsening German business climate.
“Stock markets are taking a breather after being beat up… as recession fears took their toll,” OANDA analyst Craig Erlam told AFP.
But he warned that stock markets remain “vulnerable to another onslaught if the news does not improve”.
Asian stock markets closed higher after Thursday’s gains on Wall Street.
The slight recoveries come after global markets have been thrown into turmoil for months owing to soaring inflation, interest-rate hikes, the Ukraine war and China lockdowns.
Federal Reserve boss Jerome Powell this week told lawmakers a recession was “certainly a possibility”.
He suggested officials were ready to press on with big rate hikes, following last week’s three-quarter point increase for US borrowing costs that sent markets tanking.
By contrast, the Bank of Japan is sitting tight over interest rate rises, even as the country’s inflation stands at a seven-year high.
Sentiment in Asia has meanwhile been boosted by comments from Chinese President Xi Jinping suggesting an end to China’s tech crackdown as well as possible new measures aimed at lifting the economy.
Hong Kong shares were among the biggest winners Friday thanks to a rally in tech giants including Alibaba, Tencent and NetEase.
– Key figures at around 1100 GMT –
London – FTSE 100: UP 1.3 percent at 7,110.72 points
Frankfurt – DAX: UP 0.8 percent at 13,010.79
Paris – CAC 40: UP 1.8 percent at 5,991.39
EURO STOXX 50: UP 1.4 percent at 3,485.73
Tokyo – Nikkei 225: UP 1.2 percent at 26,491.97 (close)
Hong Kong – Hang Seng Index: UP 2.1 percent at 21,719.06 (close)
Shanghai – Composite: UP 0.9 percent at 3,349.75 (close)
New York – Dow: UP 0.6 percent at 30,677.36 (close)
Euro/dollar: UP at $1.0543 from $1.0523 late Thursday
Pound/dollar: UP at $1.2304 from $1.2260
Euro/pound: DOWN at 85.68 pence from 85.83 pence
Dollar/yen: UP at 135.02 yen from 134.95 yen
Brent North Sea crude: UP 1.6 percent at $111.79 per barrel
West Texas Intermediate: UP 1.6 percent at $105.91 per barrel
Drought hits Italy’s hydroelectric plants
Hydroelectric power in Italy has plunged this year thanks to a drought that has also sparked water restrictions and fears for agriculture, industry sources said Friday.
Hydropower facilities, mostly located in the mountains in the country’s north, provide almost one fifth of Italy’s energy demands.
But the lack of rain is causing problems, at a time when Rome is desperately trying to wean itself off its dependence on Russian gas due to the war in Ukraine.
“From January to May 2022, hydro production fell by about 40 percent compared to the corresponding period in 2021,” a spokesman for Utilitalia, a federation of water companies, told AFP.
“Hydro production has been steadily decreasing since July 2021,” he said, blaming “the severe shortage of water even at high levels”.
An industry source told AFP that while the situation was constantly changing, estimates for the first six months of 2022 suggest nationwide hydroelectric generation will be almost half the equivalent period of 2021.
One small plant near Piacenza, southeast of Milan, was shut indefinitely on June 21 due to low levels on the River Po that feeds it, the Enel energy company said.
“Considering the current drought situation, other hydro plants are not operating at full capacity,” a spokesman added, without giving further details.
The Po River is Italy’s largest reservoir of fresh water. Much of it used by farmers, but is suffering its worst drought for 70 years.
Italy’s largest agricultural association, Coldiretti, said the drought is putting over 30 percent of national agricultural production and half of livestock farming in the Po Valley at risk.
In the northwest region of Piedmont, water is being rationed in more than 200 municipalities, according to the ANSA news agency.
The Maggiore and Garda lakes are both far lower than usual for this time of year, while further south, the level of the River Tiber that runs through Rome has also dropped.
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