Lack of Jobs, Foreclosures May Keep U.S. Housing Depressed

Pat Lashinsky knows what’s preventing his U.S. real-estate brokerage firm from attracting more customers. He also knows there is little he can personally do to make it right.

“There’s a mindset of fear of losing employment,” Lashinsky, chief executive officer of Emeryville, California- based ZipRealty Inc., said in an interview yesterday. Housing “is not in a very good position right now.”

Sales of new homes probably held at a 330,000 annual pace in July, the second lowest on record, according to the median estimate of economists surveyed by Bloomberg News ahead of Commerce Department figures today. Another report showed business investment, one of the few economic bright spots, is starting to cool.

New-home purchases, a leading indicator of demand because they are calculated when a contract is signed, indicate the market for existing homes will not rebound much following last month’s record 27 percent drop even after the lingering influences of a government buyer incentive wear off. A prolonged housing slump may weaken the economic recovery, making it more likely Federal Reserve policy makers will take additional steps to spur growth.

“The housing problem is a problem for the broader economy, and until that comes back, we won’t have a robust recovery,” said Nicolas Retsinas, director emeritus of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “Jobs are going to be the key factor in the recovery, and we have a job market that’s sluggish.”

The Commerce Department report on home sales is due at 10 a.m. in Washington. Estimates ranged 291,000 to 355,000.

Taking Longer

The houses being offered by ZipRealty are taking about five months to six months to sell, twice as long as in 2008, said Lashinsky.

Sales of previously owned single-family homes plunged to a 3.37 million annual rate last month, the fewest since 1995, figures from the National Association of Realtors showed yesterday. At that pace, it would take 11.9 months to sell all the properties on the market, the most since 1983.

Demand for new houses plummeted 37 percent in May, the month after a government tax credit worth as much as $8,000 expired. Purchases climbed 24 percent in June, leaving them at a 330,000 pace, the second-lowest in data going back to 1963.

The inability of sales to snap back more, even with the lowest mortgage rates on record, is testament to the underlying weakness in demand as unemployment hovers close to 10 percent and Americans are concerned over job prospects.

Unemployment Outlook

Company payrolls rose a less-than-forecast 71,000 in July and were revised down for the previous month, the Labor Department reported Aug. 6. Economists surveyed by Bloomberg forecast unemployment will end the year at 9.5 percent, unchanged from the rate in June and July, and average 9.1 percent in 2011.

“Housing’s incapacity to turn around is a very big reason why this recovery is so weak,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Gains in business investment on new equipment may be slowing, separate figures from the Commerce Department showed.

Orders for durable goods increased 0.3 percent in July, less than the 3 percent median forecast in a Bloomberg survey. Excluding transportation equipment, orders fell.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business, investment, dropped 8 percent after climbing 3.6 percent in June, more than previously estimated. Over the past three months, these orders climbed at a 20 percent annual pace, down from a 31 percent gain in the three months to June, signaling companies will rein in investment.

Shares of manufacturers are still outperforming homebuilders and the broader market. The Standard & Poor’s Supercomposite Machinery Index is up 5.9 percent so far this year. The S&P Supercomposite Homebuilder Index is down 13 percent while the S&P 500 Index is down 5.7 percent.

Competing with Foreclosures

Builders have to compete with existing homes on the market, where supply has been swollen by the so-called shadow inventory of foreclosures and short sales, in which banks accept less than the outstanding balance on a mortgage.

“We need resale inventory, namely foreclosure inventory, to come down before we’re going to see any meaningful move in the housing market,” Richard Dugas, chief executive officer at Pulte Group Inc., said in an interview with Bloomberg Television on Aug. 20.

The excess supply is one reason Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, is projecting property values will fall over the next one to two years.

Fed policy makers will probably need to resort to “additional monetary stimulus via asset purchases or other unconventional measures” to shore up the economy, Hatzius said in an interview with Tom Keene yesterday on Bloomberg Radio.

Federal Reserve

Central bankers on Aug. 10 made their first attempt to shore up the recovery by pledging to maintain their holdings of securities and prevent money from draining out of the banking system.

In a bid to prop up the market, the Obama administration plans to offer $1 billion in zero-interest loans to help homeowners who’ve lost income avoid foreclosure as part of $3 billion in additional aid targeting economically distressed areas.

                        Bloomberg Survey
==============================================================
                          Durables Durables New Home New Home
                            Orders Ex-Trans    Sales    Sales
                              MOM%     MOM%   ,000’s     MOM%
==============================================================

Date of Release              08/25    08/25    08/25    08/25
Observation Period            July     July     July     July
--------------------------------------------------------------
Median                        3.0%     0.5%      330     0.0%
Average                       3.1%     0.4%      331     0.2%
High Forecast                 6.8%     2.0%      355     7.6%
Low Forecast                  1.2%    -1.0%      291   -12.0%
Number of Participants          75       48       74       74
Previous                     -1.2%    -0.9%      330    23.6%
--------------------------------------------------------------
4CAST Ltd.                    4.5%     0.5%      310    -6.1%
ABN Amro Bank                 2.5%     0.5%      335     1.5%
Action Economics              3.5%     0.5%      325    -1.5%
Aletti Gestielle SGR          3.0%     ---       340     3.0%
Ameriprise Financial Inc      2.0%     0.0%      330     0.0%
Banesto                       2.5%     ---       340     3.0%
Bank of Tokyo- Mitsubishi     2.3%     ---       326    -1.2%
Bantleon Bank AG              3.2%     0.2%      315    -4.6%
Barclays Capital              2.0%     0.5%      347     5.2%
Bayerische Landesbank         3.2%     0.5%     ---      ---BBVA
2.0%     0.8%      340     3.0%
BMO Capital Markets           3.0%     0.5%      330     0.0%
BNP Paribas                   2.0%     ---       325    -1.5%
BofA Merrill Lynch Research   2.0%     0.5%      345     4.6%
Briefing.com                  3.2%     0.5%      300    -9.1%
Capital Economics             4.5%    -1.0%      350     6.1%
CIBC World Markets            3.2%     1.0%      337     2.1%
Citi                          4.2%    -0.2%      340     3.0%
ClearView Economics           2.5%     ---       350     6.1%
Commerzbank AG                4.0%     0.5%      320    -3.0%
Credit Agricole CIB           2.6%     0.4%      334     1.2%
Credit Suisse                 2.5%     0.5%      310    -6.1%
Danske Bank                   ---      ---       327    -0.9%
DekaBank                      4.3%     ---       340     3.0%
Desjardins Group              2.5%     ---       330     0.0%
Deutsche Bank Securities      3.0%     0.0%      340     3.0%
Deutsche Postbank AG          3.0%     0.5%     ---      ---DZ
Bank                       4.2%     0.7%      315    -4.6%
Exane                         2.5%     0.8%      300    -9.1%
First Trust Advisors          6.5%     2.0%      340     3.0%
FTN Financial                 1.5%     0.5%      325    -1.5%
Goldman, Sachs & Co.          4.0%     ---       314    -5.0%
Helaba                        2.3%     ---       330     0.0%
HSBC Markets                  3.8%     0.0%      320    -3.0%
Hugh Johnson Advisors         2.0%     ---       320    -3.0%
IDEAglobal                    3.0%     1.0%      345     4.6%
IHS Global Insight            5.0%     ---       325    -1.5%
Informa Global Markets        4.0%     ---       340     3.0%
ING Financial Markets         3.0%     1.0%      325    -1.5%
Insight Economics             1.5%     ---       340     3.0%
Intesa-SanPaulo               2.8%     0.5%      330     0.0%
J.P. Morgan Chase             2.5%    -0.6%      330     0.0%
Janney Montgomery Scott       3.2%    -0.8%      344     4.2%
Jefferies & Co.               2.2%     ---       355     7.6%
Landesbank Berlin             6.8%     1.2%      340     3.0%
Landesbank BW                 1.5%     ---       320    -3.0%
Maria Fiorini Ramirez         ---      ---       335     1.5%
MF Global                     5.0%    -0.5%      330     0.0%
MFC Global Investment         3.0%     1.0%      325    -1.5%
Moody’s Economy.com           5.9%     0.6%      317    -3.9%
Morgan Keegan & Co.           1.3%     ---       309    -6.4%
Morgan Stanley & Co.          3.5%     ---       330     0.0%
National Bank Financial       ---      ---       330     0.0%
Newedge                       2.0%     0.2%     ---      ---
Nomura Securities Intl.       2.5%     ---       330     0.0%
Nord/LB                       3.5%     0.8%     ---      ---
Pierpont Securities LLC       2.7%     ---       340     3.0%
PineBridge Investments        3.8%    -0.2%      355     7.6%
PNC Bank                      1.2%     ---       350     6.1%
Raiffeisen Zentralbank        4.0%    -1.0%     ---      ---
Raymond James                 1.6%     0.2%      320    -3.0%
RBC Capital Markets           1.8%    -0.2%      327    -1.0%
RBS Securities Inc.           2.9%     ---       350     6.1%
Scotia Capital                3.5%     0.6%      320    -3.0%
Societe Generale              ---      1.0%      340     3.0%
Standard Chartered            3.0%     0.5%      340     3.0%
State Street Global Markets   3.7%     0.7%      322    -2.4%
Stone & McCarthy Research     2.8%     ---       340     3.0%
TD Securities                 2.6%     0.1%      325    -1.5%
Thomson Reuters/IFR           5.5%     0.6%      338     2.4%
Tullett Prebon                3.0%     0.6%      320    -3.0%
UBS                           3.0%     ---       330     0.0%
UniCredit Research            2.0%     0.3%      340     3.0%
University of Maryland        1.5%     ---       330     0.0%
Wells Fargo & Co.             2.0%     1.0%      338     2.4%
WestLB AG                     2.0%     ---       320    -3.0%
Westpac Banking Co.           5.0%     ---       291   -12.0%
Woodley Park Research         4.3%     ---       337     2.1%
Wrightson ICAP                5.0%     ---       350     6.1%
==============================================================

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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