Bloomberg News

Purchases of New U.S. Homes Probably Little Changed in October

November 29, 2011

Nov. 28 (Bloomberg) -- Purchases of new U.S. houses were probably little changed in October as the industry headed for its worst year on record, economists said before a report today.

Sales came in at a 313,000 annual pace last month, the same as in September, according to the median estimate of 57 economists surveyed by Bloomberg News. That would put the monthly average for the year at 304,000, less than the 323,000 in 2010 that was the lowest since data-keeping began in 1963.

An overhang of distressed properties in the foreclosure pipeline that is weighing on prices may keep luring whatever buyers there are to existing rather than new houses. A jobless rate that has been hovering around 9 percent or higher for more than two years signals demand will take time to pick up.

“We need to see stronger job growth before we see a sustained upward trend in housing demand,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto.

Economists’ estimates in the Bloomberg survey ranged from 300,000 to 330,000. The Commerce Department’s report is due at 10 a.m. New York time.

Sales of previously owned homes, which make up about 94 percent of the market, unexpectedly rose 1.4 percent to a 4.97 million annual rate in October, figures from the National Association of Realtors showed Nov. 21. The median price dropped 4.7 percent from October 2010. Cash deals accounted for 29 percent of the transactions, while distressed properties, including foreclosures and short sales, made up 28 percent.

Leading Indicator

New home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later.

Builder shares have suffered this year as the competition from existing homes heated up. The Standard & Poor’s Supercomposite Homebuilder Index has dropped 18 percent so far in 2011, compared with a 7.9 percent decrease in the broader S&P 500.

With falling home prices continuing to weigh on household wealth and consumer spending, some Federal Reserve officials have called for more accommodative policy.

Fed Bank of New York President William C. Dudley said this month that if the central bank opted to purchase more bonds to lower interest rates and stimulate the economy, “it might make sense” for much of those purchases to consist of mortgage- backed securities, which would have a “greater direct impact on the housing market.”

No Forecast

The lack of demand this year came as a shock to builders like Atlanta-based Beazer Homes USA Inc., making them reluctant to forecast the outlook.

“Even though I do believe that national housing starts are likely to be higher in 2012, we have not assumed any improvement in national housing activity as part of our financial planning for the year,” Allan Merrill , Beazer’s chief executive officer said during a Nov. 15 call with analysts. “Our predictions about improving national housing starts for fiscal year 2011 proved to be substantially too optimistic, so I’m reluctant to go on the record with any more macro predictions.”

--With assistance from Alex Tanzi in Washington. Editors: Carlos Torres, Kevin Costelloe

Company News: BZH US <Equity> CN

To contact the reporters 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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