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New Home Sales in U.S. Probably Fell to 7-Year Low (Update1)
By Courtney Schlisserman Aug. 24 (Bloomberg) -- New home sales probably dropped to the lowest level in seven years in July, showing a deepening housing recession that will drag down U.S. economic growth. Purchases fell to an annual rate of 820,000 last month from 834,000 in June, according to the median forecast of 73 economists surveyed by Bloomberg News. That would be the slowest pace of sales since June 2000. A continuing slump in housing may undermine the Federal Reserve's efforts to stabilize U.S. credit markets, which have been roiled by losses on securities backed by subprime mortgages. Americans are finding it more difficult to buy homes as mortgage rates rise and banks tighten requirements for getting a loan. ``It's hard to imagine that we're anywhere near a turnaround,'' Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said before today's report. ``We're certainly not going to see an inflection point until the dust has settled on the current credit conditions problem.'' The Commerce Department is scheduled to release the new home sales report at 10 a.m. in Washington. The department said in a separate report today that orders for goods meant to last several years rose 5.9 percent in July, exceeding economists' forecasts. Excluding transportation, bookings increased 3.7 percent, after a 1.2 percent drop in June. Economists' estimates for new home sales ranged from 770,000 to 860,000. Purchases have risen in just one month so far this year. Freezing Up The American housing recession shook global credit markets last week, as sinking values of mortgage debt led to a freezing up of some firms' access to capital. Countrywide Financial Corp., the largest U.S. mortgage lender, tapped a credit line from its banks last week after being shut out of the commercial-paper market. Bank of America Corp. this week agreed to invest $2 billion in the company, helping a turnaround in its stock. Fed officials, who said all year that the housing slump was contained, have acknowledged the downturn will extend further than they anticipated. ``Recent data on actual housing market activity have dampened my optimism'' about a bottoming-out in the industry, Richmond Fed President Jeffrey Lacker said on Aug. 21. Tighter credit conditions ``could further dampen residential investment,'' he added. Fed Stance Fed Chairman Ben S. Bernanke and his team are trying to calm the upheaval in credit markets without cutting the benchmark U.S. interest rate. On Aug. 17, the central bank cut the discount rate, on direct loans to banks, in an effort to increase the availability of capital. Investors and many economists expect the central bank to cut the main rate, for overnight loans between banks, by at least a quarter point at or before the next meeting, on Sept. 18. Lacker said the impact of ``financial turbulence'' on the broader economy will determine the Fed's decisions. Business investment, an area of concern at the start of the year, has offered encouragement to policy makers. Orders have had a boost from rising demand abroad, fueled in part by the dollar's decline this year. Today's report showed that orders for durable goods, which make up just more than half of total factory demand, have risen in five of the past six months. ``There is still some capital spending going on,'' Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. ``A lot of this was really internally financed'' from companies' cash flow, he added, though investment plans may be hurt as it gets tougher to borrow. Lowering Forecast Even before last week's market rout, the National Association of Realtors lowered its 2007 forecast for new and existing home sales for an eighth time this year. The Chicago- based group forecast that new home purchases will total 852,000 this year, down from 1.05 million in 2006. Toll Brothers Inc., the largest U.S. luxury homebuilder, said Aug. 22 that its fiscal third-quarter profit fell 85 percent as it was forced to write down property values. Revenue from traditional home sales declined 21 percent and order cancellations jumped 18 percent. ``During this downturn, we have experienced a much higher rate of cancellations than at any time in our 21-year history as a public company,'' Chief Executive Officer Robert Toll said in a statement. Residential construction subtracted 0.5 percentage point from growth in the second quarter, following a 0.9 percent cut the first three months of the year, according to Commerce Department estimates released July 27. The government is scheduled to release revised estimates for the period from April through June on Aug. 30. 10-Year Low Homebuilding continued to fall at the start of this quarter. An Aug. 16 Commerce Department report showed housing starts fell 6.1 percent in July to an annual rate of 1.381 million, the lowest level in a decade. ``Larger declines in residential construction are quite possible,'' said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York.
Bloomberg Survey
FIRM Durable Durable New Home
Goods Ex-tran Sales
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Number of replies 73 34 73
MEDIAN 1.0% 0.6% 820
AVERAGE 1.3% 0.6% 820
High Forecast 6.0% 2.0% 860
Low Forecast -0.7% 0.0% 770
Previous 1.3% -1.0% 834
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4CAST Ltd. 2.5% 2.0% 800
Action Economics 1.0% 0.6% 820
Alleti Gestielle SGR 0.8% n/a 833
Analytical Synthesis n/a n/a 815
Argus Research 0.5% n/a 840
BBVA 0.6% 0.3% 830
BMO Capital Markets 1.0% 0.6% 825
BNP Paribas 0.7% n/a 800
B of A Securities 1.5% n/a 840
Bantleon Bank AG 0.6% 0.7% 820
Barclays Capital 1.5% n/a 820
Bear Stearns 2.2% n/a 825
BOT- Mitsubishi 2.1% n/a 817
Briefing.com 1.0% n/a 820
Calyon 1.2% 0.6% 820
CFC Group 0.8% 0.5% 815
CIBC World Markets 1.4% n/a 830
Citigroup 1.5% 0.5% 850
ClearView Economics 1.0% n/a 810
Commerzbank 0.8% n/a 815
Credit Suisse 1.5% 1.0% 770
Daiwa Securities 1.0% n/a 790
Danske Bank n/a n/a 830
DekaBank 1.4% n/a n/a
Desjardins Group 1.2% n/a 818
Deutsche Bank 0.5% 0.0% 825
Dresdner Kleinwort 0.8% 0.4% 830
DZ Bank 0.7% 0.4% 815
FIMAT-Cube 0.8% 0.4% n/a
FTN Financial 0.6% 0.4% 790
First Trust Advisors 5.0% 1.5% 834
Global Insight 6.0% n/a 826
Goldman Sachs 2.0% n/a 822
H&R Block Financial 0.4% 0.3% 825
High Frequency 1.3% 0.7% 810
HSBC Markets 1.3% 0.7% 810
HSH Nordbank AG 0.8% 0.9% 820
Horizon Investments 0.7% 0.3% 790
IDEAglobal 1.9% 0.6% 825
ING Barings 1.2% n/a 800
Informa Global 0.7% n/a 810
Insight Economics 0.5% n/a 810
Intesa-SanPaulo 1.5% 1.0% n/a
J.P. Morgan Chase 2.0% 1.0% 800
JPMorgan Private 0.9% n/a 820
Janney Montgomery 0.9% n/a 810
Landesbank Berlin 0.3% 0.1% 850
Lehman 0.8% n/a 825
Lloyds TSB 0.8% 0.6% 825
Maria Fiorini n/a n/a 810
Merrill Lynch 2.2% 1.6% 830
MFC Global Invest. 0.6% 0.2% 825
Mizuho Securities 1.0% n/a 825
Moody's Economy.com 1.9% n/a 850
Morgan Keegan -0.7% n/a 796
Morgan Stanley 0.6% n/a 800
National Bank Fin. 0.6% 0.4% 800
National City Bank 0.5% n/a 790
Nomura 1.2% 0.6% 825
PNC Bank 1.0% 0.5% 815
RBS Greenwich Cap. 2.5% n/a 850
Ried, Thunberg 3.0% n/a 850
Scotia Capital 0.8% 0.0% 809
Societe Generale 1.6% 1.3% 825
State Street 1.0% 0.6% 838
Stone & McCarthy 1.0% n/a 820
Thomson/IFR 0.8% 0.5% 835
Tullett Prebon 1.5% n/a 860
UBS Securities LLC 2.0% n/a 800
Unicredit- UBM 0.8% n/a 825
Univ. of MD 1.0% n/a 817
Wachovia 1.2% n/a 815
Wells Fargo 1.0% n/a 820
WestLB AG 1.0% n/a 830
Westpac Banking 2.0% n/a 817
Wrightson 2.5% n/a 850
To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net Last Updated: August 24, 2007 08:46 EDT
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