Sales of New U.S. Homes Probably Fell by Most in 16 Years as Credit Ended
June 22 (Bloomberg) -- Sales of U.S. previously owned homes unexpectedly fell 2.2 percent in May to a 5.66 million annual rate, a sign demand was probably pulled into prior months before a June tax-credit deadline. Bloomberg's Mike McKee reports. (Source: Bloomberg)
Purchases of new U.S. houses plunged in May by the most in 16 years after a tax credit expired, economists said before a report today.
New-home sales, tabulated on contract signings, fell 19 percent to an annual pace of 410,000 last month, according to the median estimate of 76 economists surveyed by Bloomberg News. In order to qualify for a government incentive worth up to $8,000, a purchase agreement had to be signed by April 30.
The end of the tax advantage means the market will cool until employment picks up enough to lift incomes, brace confidence and contain foreclosures. A lack of inflation and concern over jobs and housing are among reasons Federal Reserve policy makers today may reiterate a pledge to keep interest rates near zero in coming months.
“The housing market will be much weaker in the absence of the tax credit,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “Building activity is needed to support the economic recovery and that isn’t going to pick up for quite some time. The Fed is in no hurry to raise rates.”
The Commerce Department’s report is due at 10 a.m. in Washington. Economists’ forecasts ranged from 300,000 to 530,000, after a 504,000 rate in April. Last month’s projected drop would be the biggest since January 1994.
A report yesterday showed sales of previously owned homes unexpectedly fell in May, raising the risk the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped 2.2 percent to a 5.66 million annual rate, the National Association of Realtors said.
Timely Gauge
New-home sales are considered a timelier barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market.
Other data show the market is starting to stumble. Housing starts in May declined by the most since March 2009, and building permits, a sign of future construction, fell to a one- year low, figures from the Commerce Department showed. The National Association of Home Builders/Wells Fargo confidence index for June fell by the most since November 2008.
The number of mortgage applications filed to purchase houses dropped this month to the lowest level since 1997, according to data from the Mortgage Bankers Association.
The Standard & Poor’s Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has dropped 28 percent since reaching a 19-month high on May 3. The broader S&P 500 Index is down 10 percent from the 19-month peak on April 23.
Builder Concerns
Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll Brothers, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.
“Concerns about the financial crisis in Europe and escalating regional political tensions, coupled with worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers,” Joel H. Rassman, chief financial officer at Horsham, Pennsylvania-based Toll Brothers, said in a June 16 statement.
Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said orders fell 17 percent in the quarter ended April 30 from a year earlier, and contract signings slowed in May, indicating the tax credit helped pull some sales forward.
Bloomberg Survey
=============================================
New Home New Home
Sales Sales
,000’s MOM%
=============================================
Date of Release 06/23 06/23
Observation Period May May
---------------------------------------------
Median 410 -18.7%
Average 416 -17.4%
High Forecast 530 5.2%
Low Forecast 300 -40.5%
Number of Participants 76 76
Previous 504 14.8%
---------------------------------------------
4CAST Ltd. 340 -32.5%
Action Economics 400 -20.6%
Aletti Gestielle SGR 470 -6.8%
Ameriprise Financial Inc 430 -14.7%
Banesto 480 -4.8%
Bank of Tokyo- Mitsubishi 424 -15.9%
Bantleon Bank AG 400 -20.6%
Barclays Capital 400 -20.6%
BBVA 490 -2.8%
BMO Capital Markets 421 -16.5%
BNP Paribas 480 -4.8%
BofA Merrill Lynch Resear 400 -20.6%
Briefing.com 450 -10.7%
Capital Economics 350 -30.6%
Castle Financial 480 -4.8%
CIBC World Markets 400 -20.6%
Citi 390 -22.6%
ClearView Economics 380 -24.6%
Commerzbank AG 420 -16.7%
Credit Agricole CIB 380 -24.6%
Credit Suisse 380 -24.6%
Daiwa Securities America 410 -18.7%
Danske Bank 380 -24.6%
DekaBank 420 -16.7%
Desjardins Group 440 -12.7%
Deutsche Bank Securities 525 4.2%
First Trust Advisors 460 -8.7%
Fortis 430 -14.7%
FTN Financial 500 -0.8%
Goldman, Sachs & Co. 378 -25.0%
Helaba 431 -14.5%
High Frequency Economics 300 -40.5%
HSBC Markets 400 -20.6%
IDEAglobal 430 -14.7%
IHS Global Insight 375 -25.6%
Informa Global Markets 365 -27.6%
ING Financial Markets 400 -20.6%
Insight Economics 400 -20.6%
Intesa-SanPaulo 350 -30.6%
J.P. Morgan Chase 400 -20.6%
Janney Montgomery Scott L 465 -7.7%
Jefferies & Co. 470 -6.8%
Johnson Illington Advisor 350 -30.6%
Landesbank Berlin 475 -5.8%
Landesbank BW 425 -15.7%
Maria Fiorini Ramirez Inc 400 -20.6%
MF Global 325 -35.5%
Mizuho Securities 424 -16.0%
Moody’s Economy.com 425 -15.7%
Morgan Keegan & Co. 467 -7.3%
Morgan Stanley & Co. 400 -20.6%
National Bank Financial 460 -8.7%
Natixis 431 -14.5%
Nomura Securities Intl. 410 -18.7%
Pierpont Securities LLC 390 -22.6%
PineBridge Investments 378 -25.0%
PNC Bank 375 -25.6%
Raiffeisen Zentralbank 530 5.2%
Raymond James 380 -24.6%
RBC Capital Markets 370 -26.6%
RBS Securities Inc. 440 -12.7%
Ried, Thunberg & Co. 350 -30.6%
Scotia Capital 450 -10.7%
Societe Generale 460 -8.7%
Standard Chartered 530 5.2%
State Street Global Marke 425 -15.7%
Stone & McCarthy Research 400 -20.6%
Thomson Reuters/IFR 390 -22.6%
UBS 410 -18.7%
UniCredit Research 430 -14.7%
University of Maryland 480 -4.8%
Wells Fargo & Co. 380 -24.6%
WestLB AG 450 -10.7%
Westpac Banking Co. 378 -25.0%
Woodley Park Research 412 -18.3%
Wrightson Associates 350 -30.6%
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To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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