Vital Signs: Housing and Subprime Hangover

On tap: Second-quarter gross domestic product, June figures on new and existing home sales, durable goods orders

by James Mehring

When will the housing market finally stabilize? After showing tentative signs of steadying in the winter, housing activity sank further, while the deteriorating subprime mortgage sector has turned Wall Street into a bundle of nerves.

Investors will certainly pay lots of attention to the latest new and existing home sales figures for June due out in the coming week. The consensus view among economists is demand was somewhat steady from May. New home sales are the more important figures to look at, as the results have a direct bearing on residential construction and economic growth. The number of homes still on the market is also an important number. Inventories have eased a little, but the level is still high and should continue to suppress building activity.

There are also plenty of existing homes to choose from. In May, the number of units on the market topped 4.4 million, or nearly nine months worth of sales. That extremely high number will certainly weigh on home prices in the coming months.

An ongoing concern is the potential for housing's downfall to hurt other parts of the economy. The latest numbers should show the sector's impact remains well contained. Economists expect second-quarter real gross domestic to post a big rebound after a substantial slowdown in the first three months. June durable goods orders will probably back up the strength in the latest industrial production data showing increased factory output. And July consumer sentiment will most likely improve from June, as many consumers appear to be more focused on the recent plateauing in gasoline prices than housing woes.

So far, the economy and financial markets seem to be taking everything in stride, but evidence that the worst is over for housing would certainly be reassuring.

Here's the weekly economic calendar from Action Economics.