Sunday, August 24, 2008

Home Sales Probably Held Near Decade Low: U.S. Economy Preview

By Shobhana Chandra

Aug. 24 (Bloomberg) -- Home sales in the U.S. probably teetered near a 10-year low, property values dropped and consumer spending cooled, signaling the economy has taken another turn for the worse, reports this week may show.

A total of 5.435 million new and existing homes were purchased in July at an annual pace, according to the median estimate of economists polled by Bloomberg News. June's 5.39 million rate was the weakest since at least 1999. Spending probably rose 0.3 percent in July, half the prior month's gain.

The real-estate recession will persist into next year as stricter lending rules and higher borrowing costs shackle demand. At the same time, equity is disappearing as home prices fall, and wages aren't keeping up with inflation, depriving Americans of the means to maintain spending, the biggest part of the economy.

``The economy is going down a shaky path,'' said Maxwell Clarke, chief U.S. economist at IDEAGlobal Inc. in New York. ``We're not going to see a rebound in housing anytime soon. Consumers are living hand to mouth, and the outlook for spending is very weak.''

Purchases of new houses dropped 0.9 percent to an annual rate of 525,000, according to the median estimate of economists polled ahead of a Commerce Department report on Aug. 26. March's 513,000 pace was the lowest since 1991.

Resales of existing homes, compiled from closings and reflecting contracts signed weeks or months earlier, will be reported by the National Association of Realtors tomorrow. Purchases gained 1 percent to a 4.91 million annual rate, staying near June's 10-year low, the survey median showed.

Timelier Gauge

While sales of previously owned homes account for about 85 percent of the U.S. market, new-home purchases are considered a timelier indicator because they are based on contract signings.

The slump in demand is keeping property values under pressure. The S&P/Case-Shiller index of home prices in 20 metropolitan areas probably fell in June, the survey showed. The figures, due on Aug. 26, would extend a string of declines that began in August 2006.

Consumers, after getting a temporary lift from the government's tax rebates earlier this year, are focusing on buying necessities and hunting for bargains to stretch their paychecks following the jump in food and fuel costs.

Home Depot Inc., the world's largest home-improvement retailer, said second-quarter profit fell 24 percent, its eighth straight quarterly drop. The Atlanta-based company forecast a decline in sales and earnings for the year.

Consumer 'Pressure'

``We continue to see pressure on our market and the consumer,'' Chief Executive Officer Frank Blake said in a statement on Aug. 19.

Commerce Department figures on Aug. 29 will underscore the dimming outlook for consumer spending, according to the Bloomberg survey.

The report is also projected to reinforce concern over inflation. The price gauge tied to spending patterns probably rose 4.5 percent in the year ended July, the biggest 12-month gain since 1991.

The measure that excludes food and energy costs, the one tracked by Federal Reserve policy makers, probably rose 2.4 percent from a year earlier, the biggest gain since February 2007, the survey showed.

Concerns about slower growth and the pickup in prices led Fed policy makers to hold the benchmark interest rate at 2 percent this month. Minutes of the Aug. 5 meeting, to be released Aug. 26, may shed more light on the debate within the central bank about the future direction of rates.


The one bright spot for the economy remains the narrowing of the trade deficit. A surge in exports caused the economy to grow even faster in the second quarter than previously projected. Revised figures from the Commerce Department, due Aug. 28, may show the economy expanded at a 2.7 percent annual rate from April through June, up from an advance estimate of 1.9 percent issued last month, according to the survey median.

``The data releases this week should illustrate the stark contrast between how well the economy performed in the second quarter and how bad the outlook for the second half of the year is,'' said Paul Ashworth, international economist at Capital Economics Ltd. in London.

Other reports this week may show orders for durables goods stalled in July and confidence among American consumers was little-changed this month from multiyear lows reached earlier this year, even as gasoline prices retreated.

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Exist Homes Mlns 8/25 July 4.86 4.91
Exist Homes MOM% 8/25 June -2.6% 1.0%
Case Shiller Monthly YO 8/26 June -15.8% -16.2%
Case Shiller Monthly In 8/26 June 168.5 167.2
Consumer Conf Index 8/26 Aug. 51.9 53.0
New Home Sales ,000's 8/26 July 530 525
New Home Sales MOM% 8/26 July -0.6% -0.9%
OFHEO HPI MOM% 8/26 June -0.3% -0.4%
OFHEO HPI QOQ% 8/26 #VALUE! -1.3% -1.6%
Durables Orders MOM% 8/27 July 0.8% 0.0%
Durables Ex-Trans MOM% 8/27 July 2.0% -0.6%
GDP Annual QOQ% 8/28 3Q P 1.9% 2.7%
Personal Consump. QOQ% 8/28 3Q P 1.5% 1.6%
GDP Prices QOQ% 8/28 3Q P 1.1% 1.1%
Core PCE Prices QOQ% 8/28 3Q P 2.1% 2.1%
Initial Claims ,000's 8/28 Aug. 23 432 425
Cont. Claims ,000's 8/28 Aug. 16 3362 3380
Pers Inc MOM% 8/29 July 0.1% -0.2%
Pers Spend MOM% 8/29 July 0.6% 0.3%
PCE Deflator YOY% 8/29 July 4.1% 4.5%
Core PCE Prices MOM% 8/29 July 0.3% 0.3%
Core PCE Prices YOY% 8/29 July 2.3% 2.4%
Chicago PM Index 8/29 Aug. 50.8 50.0
U of Mich Conf. Index 8/29 Aug. F 61.7 62.0

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