Purchases of New Homes in U.S. Probably Held Near Record Low
May 24, 2011, 12:24 AM EDTBy Bob Willis
May 24 (Bloomberg) -- Purchases of new houses probably held close to a record low in April, showing the real-estate market remains a weak link in the U.S. expansion, economists said before a report today.
New homes sold at a 300,000 annual pace last month, the same as in March, according to the median forecast of 75 economists surveyed by Bloomberg News. Purchases sank to a 270,000 pace in February, the weakest in 48 years of data.
The prospect that foreclosures will keep driving down property values means that buyers may continue to shun new houses in favor of previously owned dwellings, hurting builders like D.R. Horton Inc. Unemployment at 9 percent, stagnant wages and credit restrictions add to the headwinds, signaling a housing recovery will take years to unfold.
“Until that overhang of existing homes works its way down, new-home sales will remain depressed and construction as well,” said Steve Blitz, a senior economist at ITG Investment Research Inc. in New York.
The Commerce Department’s report is due at 10 a.m. in Washington. Estimates in the Bloomberg survey ranged from 280,000 to 320,000.
Stocks of homebuilders have underperformed the broader market. The Standard & Poor’s Supercomposite Homebuilders Index has fallen 1.4 percent so far this year, compared with a 4.7 percent gain for the S&P 500 Index.
‘Struggle’ Through 2012
Demand for new houses will remain weak into next year, said Bill Wheat, chief financial officer of Fort Worth, Texas-based D.R. Horton, the second-largest U.S. homebuilder by revenue. “We feel it could still be a struggle in 2012.”
Builders are cutting back as a result. Housing starts fell 11 percent in April to a 523,000 annual pace, the second-weakest reading since April 2009’s record low, figures from the Commerce Department showed last week.
One reason for the slump is growing interest from investors in buying distressed properties. Previously owned homes sold at a 5.05 million annual rate in April, down 0.8 percent from the prior month, data from the National Association of Realtors showed May 19. All-cash deals accounted for 31 percent of transactions, and distressed properties, including foreclosures and short sales, made up 37 percent, the group said.
The supply of existing houses will probably remain an issue for builders. CoreLogic Inc. in March estimated about 1.8 million homes were more than 90 days delinquent, in foreclosure or bank-owned, a so-called “shadow inventory” set to add to the unsold supply of 3.87 million previously owned homes already on the market.
Sinking Share
As distressed transactions have played a bigger role, new- home sales have shrunk as a share of total sales. They accounted for 5.6 percent of the market in March, down from 16 percent at their peak in July 2005.
Foreclosures have weighed on home prices. The S&P/Case- Shiller index of property values in 20 cities fell 3.3 percent in February from a year earlier, the biggest 12-month decrease since November 2009, the group said last month. The gauge is down 33 percent from its July 2006 peak.
In addition to the drop in values, persistent joblessness may be keeping potential buyers away. The 9 percent unemployment rate last month, almost two years into an economic recovery, compares with an average of 4.8 percent in the three years before the recession began.
That’s helping damp wages. Average hourly earnings for all workers rose 1.9 percent in April from a year earlier compared with a 3.4 percent gain in the 12 months through December 2007, when the recession began, according to Labor Department data.
Douglas Yearley Jr., chief executive officer at Toll Brothers Inc., the largest U.S. luxury-home builder, last week said the spring home-selling season has been “disappointing” and that “people are still scared.”
--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Vince Golle
To contact the reporters on this story: Bob Willis in Washington at sbwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
