[NYTr] Booming Economy: Stocks Fall Sharply on Housing and Fed Reports

[All the News That Doesn't Fit]

The New York Times - September 5, 2007
http://www.nytimes.com/2007/09/05/business/05cnd-stox.html


Stocks Fall Sharply on Home and Fed Reports

By VIKAS BAJAJ

Stocks fell sharply today after a report suggested that the troubles in
the housing market were deepening. The sell-off briefly intensified
after a Federal Reserve survey of regional conditions suggested that
the credit crisis did not appear to be affecting the broader economy
aside from housing.

The survey, known as the beige book, disappointed some investors who
are hoping that Fed policy makers cut their benchmark short-term
interest rate, now at 5.25 percent, when they meet on Sept. 18.

The major stock averages were down all day, and the loss on the Dow
Jones industrial average reached 200 points shortly after the Fed
report’s release. The Dow closed at 13,305.27, off 143.39 for the day,
or 1.1 percent. The Standard & Poor’s 500-stock index was down 1.2
percent.

Treasury prices jumped, as investors sought safety in debt backed by
the federal government. The yield on the 10-year Treasury note, which
moves in the opposite direction from the price, fell to 4.47 percent,
from 4.55 percent on Tuesday.

Earlier in the day, an index that tracks signing of contracts for
existing home sales tumbled 12.2 percent in July to its lowest level in
more than six years, the National Association of Realtors reported. The
trade group said that its members were reporting that buyers of homes
were having a tougher time obtaining financing.

A recent spike in the interest rates banks and mortgage companies
charge for jumbo home loans — those above $417,000 — appears to be
having a sizable impact. Pending home sales dropped by nearly 21
percent in the West, where home prices are higher than in most of the
country.

Interest rates on jumbo loans have surged as many investors have
stopped buying bonds backed by mortgages that do not conform to the
standards followed by Fannie Mae and Freddie Mac, the
government-sponsored buyers of home loans whose debt is considered
second only to Treasury notes and bonds in terms of safety.

The pending-home sales index is one of the most timely measures of the
housing market, because it measures contract signings rather than
closings, which is tracked by the existing home-sales report the
Realtors issue every month.

Financial stocks, which are considered to have the biggest exposure to
the problems in the housing market, accounted for about a third of the
drop in the S.&P. Industrial, information-technology and consumer
discretionary sectors accounted for another third of the decline.

Copyright 2007 The New York Times