Bloomberg News

Home Sales, Construction Probably Rose: U.S. Economy Preview

July 17, 2011

July 17 (Bloomberg) -- Home sales and construction in the U.S. probably rose in June from depressed levels as the industry struggled to gain traction in the face of foreclosures, falling prices and rising unemployment, economists said before reports this week.

Purchases of previously owned homes climbed 2.9 percent from May’s six-month low to a 4.95 million annual rate, according to the median projection of 55 economists surveyed by Bloomberg News before a National Association of Realtors’ report on July 20. Housing starts rose 2.7 percent to a 575,000 pace, economists forecast another release will show a day earlier.

Declining home values and delays in processing foreclosures mean it may take years to clear the market of distressed properties, a sign sustained gains in sales and construction will be slow to develop. Federal Reserve Chairman Ben S. Bernanke last week said housing remains “depressed” due in part to a lack of job and income growth, which is restraining the broader economy.

A housing recovery “is very difficult until we work off some of the enormous supply,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “We’re talking about levels that are absolutely abysmal.”

Purchases of existing homes reached a record 7.08 million in 2005, during the housing boom, and slumped to a 13-year low of 4.91 million in 2010.

Cash Purchases

Sales of existing homes in recent months have been driven by investor cash purchases of distressed properties. At the same time, unemployment above 9 percent and strict lending standards make it harder for most Americans to take advantage of mortgage rates that are close to a record low.

“Stabilization and recovery will continue to be a slow and rocky process,” Stuart Miller, chief executive officer of Lennar Corp., said on a June 23 conference call. Miami-based Lennar is the third-largest U.S. homebuilder by revenue.

Lender delays in processing home-loan defaults will push as many as 1 million U.S. foreclosure filings from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, according to RealtyTrac Inc., a housing data provider. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump extends into a sixth year.

With home prices continuing to drop and more distressed properties making their way to the market, builders remain reluctant to take on new projects.

Record Lows

The median projection for June housing starts is less than the 588,000 begun last year, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. Starts reached a peak of 2.07 million in 2005.

Building permits, an indicator of future construction, fell 2 percent in June, according to the median forecast of economists before the Commerce Department’s figures.

A report tomorrow may show homebuilder confidence rose from a nine-month low. The National Association of Home Builders/Wells Fargo sentiment index rose to 14 this month from 13 in June, according to the survey median. Readings lower than 50 mean more respondents view conditions as poor.

Homebuilder shares have lagged behind the broader market this year. The Standard & Poor’s Homebuilder Supercomposite Index has dropped 4.2 percent this year, compared with a 4.7 percent gain for the S&P 500 Index.

Leading Indicators

Among other data this week, the Conference Board’s index of leading economic indicators is projected to show growth will cool in the second half of the year. The gauge of the outlook for the next three to six months may rise 0.2 percent in June after a 0.8 percent increase in May, economists forecast the July 21 report will show.

Another report from the Federal Reserve Bank of Philadelphia the same day may show manufacturing had trouble gaining ground as the third quarter began. The bank’s regional general economic index rose to 2 this month after falling to minus 7.7 the prior month. Readings higher than zero signal growth.

Also on July 21, a Labor Department report may show initial jobless claims rose by 5,000 to 410,000 last week, economists forecast.

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

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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


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