Home Sales in U.S. Probably Rose in Sign Real Estate Market Is Stabilizing

Home Sales in U.S. Probably Rose in Sign Real Estate Market Is Stabilizing

Sept. 17 (Bloomberg) -- Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., discusses the outlook for Federal Reserve monetary policy. Feroli, speaking with Betty Liu on Bloomberg Television's "In the Loop," says the Fed still has "some tools left" to help the economy and expects the central bank to expand its balance sheet by year end. He also discusses tax policy. (Source: Bloomberg)
Home sales probably increased in August, a sign the U.S. real estate market is stabilizing after the expiration of a tax credit caused demand to plunge, economists said before reports this week.

Purchases of new and previously owned homes rose 7 percent to a combined 4.395 million annual pace, according to the median forecast in a Bloomberg News survey. A separate report may 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, Pennsylvania. The 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 meet Sept. 21 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’s been since 2008. Economists surveyed by Bloomberg earlier this month forecast 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 earlier 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.”

Existing-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 before the National Association of Realtors’ report on Sept. 23 in Washington. The 7.1 percent gain would follow the record 27 percent plunge in July.

The following 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. While the deadline for closing was moved to Sept. 30 from an original June 30, the bulk of purchasers wanting to qualify had already completed the buying process.

Temporary Relief

The tax incentive provided temporary relief for the industry that precipitated the worst recession since the 1930s. With the economy cooling from earlier this year, lawmakers are now debating whether to extend tax cuts put in place by President George W. Bush.

Democrats are pushing President Barack Obama’s plan to let tax cuts for the wealthiest 2 percent to 3 percent of Americans expire and permanently extend lower rates on individuals with incomes up to $200,000 and for couples up to $250,000.

The end of the homebuyer credit, 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 its net orders dropped 37 percent in the quarter ended July 31 from a year earlier.

Jobs Are ‘Key’

“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 Officer Ara Hovnanian said in a statement.

That may explain why shares of builders have declined this year, while the broader market has gained. The Standard & Poor’s Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and Lennar Corp., is down 7.7 percent this year compared with a 0.9 percent rise for the S&P 500.

Another report on housing this week, due Sept. 21 from the Commerce Department, will show 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.

Construction permits for new homes were little changed at a 560,000 pace, indicating ground-breaking will be hard-pressed to pick up in coming months.

Rising Foreclosures

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 Sept. 16.

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 Sept. 24. 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 non-defense capital goods excluding aircraft, a proxy for future business investment, may have increased 4 percent.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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NAHB Housing Index 9/20 Sept. 13 14
Housing Starts ,000’s 9/21 Aug. 546 550
Housing Starts MOM% 9/21 Aug. 1.7% 0.7%
Building Permits ,000’s 9/21 Aug. 559 560
Initial Claims ,000’s 9/23 18-Sep 450 450
LEI MOM% 9/23 Aug. 0.1% 0.1%
Exist Homes Mlns 9/23 Aug. 3.83 4.10
Exist Homes MOM% 9/23 Aug. -27.2% 7.1%
Durables Orders MOM% 9/24 Aug. 0.4% -1.0%
Durables Ex-Trans MOM% 9/24 Aug. -3.7% 1.0%
Cap Goods Core MOM% 9/24 Aug. -7.2% 4.0%
New Home Sales ,000’s 9/24 Aug. 276 295
New Home Sales MOM% 9/24 Aug. -12.4% 6.9%
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source: bloomberg.com