Oct. 21 -- Home sales in the U.S. probably dropped to a seven-year low in September while business spending grew, showing parts of the economy are weathering the deepening housing slump, economists said before reports this week.
Total purchases of new and existing homes fell to an annual pace of 6.02 million, the fewest since August 2000, according to the median estimate of economists surveyed by Bloomberg News. Orders for long-lasting goods rose 1.5 percent after falling in August, a separate report may show.
The real-estate recession will worsen as stricter lending rules and higher mortgage rates make it more difficult for potential buyers to get financing. The economy will avoid recession as businesses, led by growing demand from overseas, continue to invest and hire.
``The credit tightening is having a significant impact on home sales,'' said Dean Maki, chief U.S. economist at Barclays Capital in New York. ``The rest of the economy continues to grow at a solid pace.''
The National Association of Realtors is scheduled to issue its report on sales of existing homes on Oct. 24. Economists forecast resales fell to a 5.25 million annual rate last month, the lowest level since November 2001, the survey showed.
New-home sales, due from the Commerce Department Oct. 25, dropped to a 770,000 pace, according to the survey median. That would be the lowest since May 1997.
Existing-home sales account for about 85 percent of the market, and purchases of new homes make up the rest.
Timelier Gauge
Even so, new-home purchases are considered a timelier indicator because they are based on contract signings. Existing home sales are calculated when a contract closes, usually a month or two later.
Declines in residential construction have subtracted from economic growth since the first quarter of 2006.
Falling demand is driving up inventories of unsold properties and may continue to weigh on values. There was a 10- months' supply of existing homes on the market based on the current sales pace at the end of August, the most since the real-estate agents' group began keeping records in 1999.
Mortgage lending will tumble this year to $2.3 trillion, the lowest since 2000, as the ``credit shock'' restricts lending, the Mortgage Bankers Association said Oct. 17. Sales of previously owned homes will drop to 5.7 million this year, the lowest since 2002, and new-home sales will fall to the lowest in a decade, according to the forecast.
`Tough Times'
``These are tough times,'' Douglas Duncan, the association's chief economist, said in a meeting with reporters at the group's annual convention last week. ``We have a ways to go in the housing recession, and it's a deep recession.''
Builders are offering more incentives to attract buyers. Pulte Homes Inc., the third-largest U.S. homebuilder, had a Halloween-themed ``Monster Sale'' this weekend including free appliances and landscaping and 5.875 percent, 30-year fixed financing.
Federal Reserve Chairman Ben S. Bernanke last week said the real-estate slump ``is likely to be a significant drag on growth in the current quarter and through early next year.''
It is ``too early'' to assess whether the drop in housing will slow consumer spending and business investment in coming months, Bernanke also said.
The weakness in housing has depressed demand for construction machinery and related products. Orders for computers, communications gear and other business-capital equipment is holding up better. Bookings from overseas and a weak dollar are also supporting gains in U.S. exports, economists said.
Bulldozers, Dump Trucks
Caterpillar Inc., the world's largest maker of bulldozers and dump trucks, last week cut its full-year profit forecast as the housing slump reduced sales of construction equipment in North America. The company still projects 2007 revenue of $44 billion, helped by international sales, which increased at least 23 percent in overseas regions.
The Commerce Department report on orders for durable goods, those made to last at least several years, is due Oct. 25. The projected increase was led by a jump in demand for Boeing Co. aircraft, economists said.
Excluding transportation equipment, bookings probably increased 0.7 percent, according to the survey.
``Weakness in housing certainly has spilled over, it just hasn't been devastating,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``There have been plenty of industries that have been affected. Some of them have been able to make it up with exports, but not others.''
Other reports this week may show initial jobless claims fell last week following their biggest jump in eight months. The increase raises concern the job market is softening.
The Reuters/University of Michigan index of consumer sentiment, due Oct. 26, may have dropped to a one-year low this month, economists said.
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