Home Resales Probably Fell in December: U.S. Economy Preview

By Courtney Schlisserman


Jan. 20 (Bloomberg) -- Sales of existing homes in the U.S. probably fell in December, capping the biggest yearly slump in almost a generation, economists said before a report this week.

Purchases fell 1 percent last month to a 4.95 million rate, the fewest since comparable records began in 1999, according to the median forecast in a Bloomberg News survey ahead of the National Association of Realtors' report due Jan. 24.

Falling property values and tougher borrowing rules will lead to more foreclosures and keep the real-estate market in recession for most of this year, economists said. A housing- related slump in consumer spending poses the biggest risk to the economic expansion in coming months.

``We're still on the way down in housing,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The first half of the year is going to be crucial to determining whether we have a recession.''

Sales of existing homes probably dropped 13 percent last year, the most since 1989, according to a forecast by the real- estate agents group.

The same day as the sales report, the Labor Department is scheduled to release its weekly figures on first-time jobless claims. Filings for unemployment benefits probably increased to 320,000 from 301,000 the prior week, according to the survey median.

An unexpected decline in the number of claims in recent weeks caused many economists to question whether the government has accurately monitored the situation. It's often difficult for the Labor Department to adjust the data during holidays, adding to volatility in the readings, economist said.

Claims May Rise

Economists are expecting to see a pickup in claims to confirm the labor market has weakened. The jobless rate jumped up to 5 percent in December.

``We've been a little puzzled by the continued strength of the overall labor market, particularly claims,'' Peter Hooper, chairman of the American Bankers Association's Economic Advisory Committee, said at a press conference on Jan. 18. ``Our sense is the labor market is likely softening.''

Hooper is chief economist at Deutsche Bank Securities Inc.

The deepening housing slump is one of the reasons the job market has deteriorated. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, said last week it will eliminate 1,300 jobs in the firm's fourth round of cuts resulting from the collapse of the mortgage market.

Lehman, the fourth-largest U.S. securities firm, cut 2,450 jobs last year by shutting its subprime-mortgage unit.

Construction Drops

Builders broke ground in December on fewer houses than forecast, making last year's decline in homebuilding the worst in almost three decades, a report from the Commerce Department last week showed. For all of 2007, starts were down 25 percent, the biggest decline since 1980.

Spending on residential construction projects will drop 21 percent this year after declining 17 percent in 2007, according to a forecast by Lehman economists.

Federal Reserve Chairman Ben S. Bernanke said earlier this month that the central bank would take ``substantive'' action in response to the increasing risk of slower growth. Central bankers will cut interest rates by at least half a percentage point when they meet this month, according to futures trading.

President George W. Bush last week proposed a growth package of as much as $150 billion to counter escalating risks to the economic expansion.

``The biggest issue we have in our economy is housing,'' Treasury Secretary Henry Paulson told reporters on Jan. 18. The stimulus proposals will help the economy ``better withstand and weather effects that are coming about largely as a result of this decline in home prices and the housing slump.''

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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Initial Claims ,000's 1/24 Jan. 20 301 320
Cont. Claims ,000's 1/24 Jan. 13 2751 2728
Exist Homes Mlns 1/24 Dec. 5.00 4.95
Exist Homes MOM% 1/24 Dec. 0.4% -1.0%
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