Sunday, April 6, 2008

Contracts to Purchase Homes Probably Fell: U.S. Economy Preview

By Shobhana Chandra

April 6 (Bloomberg) -- Fewer Americans signed contracts to buy previously owned homes in February as the housing slump slogged into a third year, a report this week may show.

The index of pending home sales fell 1 percent for the month, according to the median estimate of economists surveyed by Bloomberg News ahead of a report from the National Association of Realtors. Figures from the Commerce Department may show the trade deficit shrank as exports grew.

Falling property values and stricter lending rules are scaring away prospective buyers, indicating the contraction in real estate will persist. At the same time, a weaker dollar is stoking overseas demand for American goods, offsetting some of the drop in U.S. sales as the jobless rate and fuel prices climb.

``Home sales have further to fall, so housing will be a drag throughout 2008,'' said Patrick Newport, an economist at Global Insight Inc. in Lexington, Massachusetts. ``Exports are really keeping the economy from falling into a much deeper recession.''

The Realtors' pending sales gauge, due April 8, is considered a leading indicator of home resales because it tracks contract signings. The sales figures are based on closings a month or two later.

A decline would be the third in the last four months. The measure was unchanged in January.

The gap between imports and exports shrank to $57.5 billion in February from $58.2 billion the prior month, Commerce figures due April 10 are projected to show.

Exports Rise

The report may also show that slowing demand among American consumers and businesses restrained imports. The export boost provided by a weaker dollar, which makes American-made goods less expensive for overseas buyers, is helping to avert a deeper slump in manufacturing.

Still, companies are cutting jobs. Payrolls fell by 80,000 in March, the most in five years, the Labor Department said April 4. The jobless rate jumped to 5.1 percent, the highest level since September 2005, from 4.8 percent.

Federal Reserve Chairman Ben S. Bernanke last week acknowledged for the first time that the economic expansion may come to a halt as homebuilding, employment and spending deteriorate.

Mounting concern that the turmoil in financial markets would worsen the economic downturn led policy makers to cut the benchmark interest rate to 2.25 percent on March 18. Minutes of that meeting will be released on April 8. The Fed has taken additional steps to stabilize the markets, including facilitating JPMorgan Chase & Co.'s purchase of Bear Stearns Cos.

Defaults, Foreclosures

Meanwhile, demand for housing continues to languish as defaults on subprime mortgages and rising foreclosures push even more properties onto the market. Banks selling foreclosed homes and builders eager to get rid of inventories are slashing prices.

Home values dropped in 21 U.S. cities in January, led by Sacramento and Las Vegas, according to a report last week from New York-based Radar Logic Inc., a real estate data company.

Falling prices also make Americans feel less wealthy by reducing home equity, representing another headwind for Americans.

An April 11 report may show the Reuters/University of Michigan preliminary index of consumer sentiment for this month dropped to 69, a 16-year low, from 69.5 in March, according to the Bloomberg survey median.

Homebuilders continue to struggle. KB Home, the fifth- largest U.S. homebuilder, reported a first-quarter loss as sales plunged 43 percent.

``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call with investors on March 28. ``Some are worried about losing their jobs, others believe prices have further to fall. Many are simply unable to qualify for financing given the more restrictive lending environment.''

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Cons. Credit $ Blns 4/7 Feb. 6.9 6.0
Pending Homes MOM% 4/8 Feb. 0.0% -1.0%
Whlsale Inv. MOM% 4/9 Feb. 1.0% 0.5%
Trade Balance $ Blns 4/10 Feb. -58.2 -57.5
Initial Claims ,000's 4/10 6-Apr 407 380
Cont. Claims ,000's 4/10 30-Mar 2937 2942
Federal Budget $ Blns 4/10 March -96.3 -70.8
Import Prices MOM% 4/11 March 0.2% 2.0%
Import Prices YOY% 4/11 March 13.6% 13.6%
U of Mich Conf. Index 4/11 April P 69.5 69.0

No comments: