Rise in home sales may show a stabilizing market

From foreclosure to food shortages, the economic downturn set in motion by the financial crisis of 2008 is having a broad and deeply-felt global impact.
By Courtney Schlisserman
Sunday, September 19, 2010; 8:02 PM

Home sales likely increased in August, a sign the U.S. real estate market is stabilizing after the expiration of a tax credit might have caused demand to plunge, economists said before reports on the housing market this week.

Purchases of new and previously owned homes rose 7.1 percent, to a combined 4.395 million annual pace, according to the median forecast in a Bloomberg News survey. A separate report could show orders for long-lasting goods, excluding transportation equipment, rebounded last month.

"Housing is in a fragile bottoming process," said Aaron Smith, a senior economist at Moody's Analytics in West Chester, Pa. Projected gains in home sales and durable goods are "consistent with stabilizing growth, albeit it at a slower" pace than earlier this year, he said.

Builders such as Hovnanian Enterprises Inc. face a housing market depressed by unemployment close to 10 percent and rising foreclosures, making it difficult for mortgage rates near record lows to stoke demand. Combined with growth in manufacturing, the figures underscore the Federal Reserve's view that the economy, while decelerating, will avoid slipping back into a recession.

Fed Chairman Ben S. Bernanke and his fellow U.S. central bankers are to meet Tuesday to determine whether the economy needs additional stimulus. The Fed's benchmark interest rate is already in a range from zero to 0.25 percent, where it has been since 2008. Economists surveyed by Bloomberg this month forecast that the Fed's Open Market Committee will keep the rate unchanged until late next year.

The central bank said in its Beige Book survey of regional Fed banks this month that there were "widespread signs of a deceleration" in the economy from mid-July through the end of August. Most areas of the U.S. reported "very low or declining home sales."

Sales of previously owned homes rose to a 4.1 million annual rate in August from a 3.83 million pace, according to the median estimate of economists ahead of the National Association of Realtors' report on Thursday in Washington. The 7.1 percent gain would follow the record 27 percent plunge in July.

The next day, the Commerce Department will release the new-home sales figures. The median forecast calls for purchases to rise to a 295,000 pace, up 6.9 percent from a month earlier.

Existing-home sales account for more than 80 percent of the market and are counted when a deal is closed. New-home sales are recorded when a contract is signed.

The government's homebuyers credit of as much as $8,000 for first-time buyers required contracts by signed by April 30. The tax incentive provided temporary relief for the industry that precipitated the worst recession since the 1930s.

The end of that credit, along with joblessness and sagging consumer confidence, prompted a decline in orders at Hovnanian, the largest homebuilder in New Jersey said on Sept 1. The company said net orders dropped 37 percent in the quarter ended July 31 from a year earlier.

"Job creation is the key to a housing recovery, which makes it difficult to predict how improvements in the economy and housing market play out," Chief Executive Ara Hovnanian said.

Another report on housing, due Tuesday from the Commerce Department, will show that starts of homes rose to a 550,000 annual rate in August, from 546,000 a month earlier, according to the median forecast in the Bloomberg survey.

Builders and sellers are competing with rising foreclosures, which means homes stay on the market longer and prices are restrained. Home seizures reached a record for the third time in five months in August, RealtyTrac Inc. said last Thursday.

The weakness in housing is making the economy more dependent on gains in manufacturing. The Commerce Department is scheduled to release the durable goods report on Friday. Bookings including those for transportation equipment probably fell 1 percent in August after a 0.4 percent gain, according to the median forecast.

Excluding transportation, orders probably rose 1 percent last month, the survey showed. Bookings for nondefense capital goods excluding aircraft, a proxy for future business investment, might have increased 4 percent.

- Bloomberg News

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