Bloomberg News

Home Sales Probably Dropped to Year’s Low: U.S. Economy Preview

June 19, 2011

June 19 (Bloomberg) -- Home sales probably dropped in May to the lowest level of the year, while orders placed with factories climbed, showing housing remains a soft spot as other parts of the U.S. economy recover, economists said before reports this week.

Purchases of new and existing houses decreased 4.8 percent to a 5.11 million annual rate last month, the weakest since November, according to the median forecast of economists surveyed by Bloomberg News. Another report may show bookings for goods made to last at least three years increased after falling in April by the most in six months.

A jobless rate hovering around 9 percent means it will take years to absorb the 1.8 million distressed properties on the market that are weighing down home values, one reason why Federal Reserve policy makers are likely to maintain record stimulus when they meet this week. Manufacturers, on the other hand, may soon recover from the supply disruptions following the disaster in Japan and help underpin the world’s largest economy.

“The outlook for the housing data remains very weak, and there’s been very little evidence of any turnaround,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. “We’ve obviously seen some slowdown in manufacturing due to the supply-chain issues in Japan. That will work itself out through the second half.”

Sales of existing homes, due from the National Association of Realtors on June 21, fell 5 percent to a 4.8 million annual pace, according to the median forecast of 55 economists surveyed by Bloomberg.

Depressed Demand

After peaking at 7.08 million in 2005, the number of existing homes purchased in 2010 plunged to 4.91 million, a 13- year low. Nonetheless, they now comprise about 94 percent of the housing market, up from about 85 percent six years ago, as foreclosures and distressed sales lure some buyers.

The 1.8 million of inventory of distressed homes nationwide would take about three years to sell at the current pace, Daren Blomquist, communications manager at RealtyTrac Inc., said last week.

Competition from existing homes selling at discounted prices is hurting builders. Sales of new properties dropped 4 percent in May to a 310,000 annual pace, economists said ahead of a June 23 report from the Commerce Department. A record-low 323,000 new homes were sold last year.

Manufacturing, which makes up 12 percent of the economy, is struggling to recover from the effects of the earthquake and tsunami in Japan after being one of the bright spots in the recovery that began two years ago.

Durable Goods

Orders for durable goods, those designed to last at least three years, increased 1.6 percent in May after dropping 3.6 percent the prior month, economists surveyed by Bloomberg said ahead of Commerce Department data June 24. Excluding volatile bookings for transportation gear, orders probably climbed 1 percent after falling 1.6 percent, the survey showed.

Gains in business investment in new equipment and demand from emerging economies like China, Brazil and Mexico are helping bolster factories. American exports in April rose to the highest level on record.

Industrial companies have outperformed homebuilders this year. The Standard & Poor’s Industrial Machinery Index has gained 0.9 percent this year, compared with a 6.2 percent decline for the S&P 500 Homebuilding Index.

Expanding Capacity

Caterpillar Inc., the world’s largest maker of construction equipment, said last week it would invest an additional $70 million at a hydraulic excavator plant and create about 100 more jobs in Victoria, Texas. Production at the plant is slated to begin in mid-2012, according to a June 17 statement from the Peoria, Illinois-based company.

Fed Chairman Ben S. Bernanke has been among those forecasting that the recent slowdown in growth will prove temporary as commodity prices retreat. At the same time, the central bank should maintain record stimulus to bolster a “frustratingly slow” recovery, he said this month. Officials are scheduled to meet in Washington on June 21-22 to determine the course of policy.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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