Home Building, Sales Probably Languished as Market Lagged Behind Recovery

Homebuilding probably dropped in December and sales of existing houses struggled to rebound from a post-tax credit slump, reflecting a market trying to regain its footing more than a year into the economic recovery, economists said before reports this week.

Builders began work on 550,000 houses at an annual rate, down 0.9 percent from November, according to the median estimate of 61 economists surveyed by Bloomberg News before Commerce Department data Jan 19. Other reports may show purchases of previously owned homes rose for a second month and a gauge of the economic outlook climbed.

KB Homes is among builders concerned unemployment stuck above 9 percent and a lack of confidence in the expansion may keep dissuading buyers. Federal Reserve policy makers have said they will go ahead with a second round of quantitative easing that will pump another $600 billion into financial markets by June in a bid to keep borrowing costs low.

“The main reason we’re not in a more typical booming recovery after a deep recession is that typically housing at this point would be growing very rapidly,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “It does not appear likely that it’s going to be a large contributor to growth anytime soon.”

Homebuilders have underperformed the broader stock market. The Standard & Poor’s Supercomposite Homebuilder Index climbed 2.3 percent last year, compared with a 13 percent gain for the S&P 500 Index. The builder gauge rose 3 percent to close at 288.46 on Jan. 14.

Home Construction

The projected drop in starts would follow a 3.9 percent increase in November that was the first gain in three months.

Builders had little incentive to take on work when house purchases slumped in mid-2010 following the expiration of a tax incentive of as much as $8,000, which required contracts to be signed by April 30 of 2010 and closed by the end of September.

Building permits, a sign of future construction, probably rose 2 percent to a 555,000 annual pace in December, economists project the construction report will also show.

A gain in permits, combined with a rising stock market, improving consumer expectations and fewer initial jobless claims helped buoy prospects for the world’s largest economy, a Conference Board report may show on Jan. 20. The New York-based group’s index of leading indicators rose 0.6 percent in December, the sixth straight gain, according to the Bloomberg survey median.

Credit’s Influence

While housing remains a weak link of the economy, sales of existing homes have begun recovering from their July 2010 slump that pushed them to the weakest rate in a decade’s worth of record keeping. Purchases of previously owned houses rose 3.8 percent in December to a 4.86 million annual pace from the prior month, economists forecast in the Bloomberg survey. The National Association of Realtors will release the figures on Jan. 20.

Purchases reached an almost three-year high 6.49 million pace in November 2009, the month the tax credit was originally due to expire. The incentive was subsequently extended.

Foreclosures may weigh on the inventory of unsold homes, discouraging construction and hurting prices. The number of homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures, RealtyTrac Inc. said this month.

KB Home, the Los Angeles-based builder that targets first- time homebuyers, last week reported an unexpected fourth-quarter profit after cutting costs and said its outlook is “cautious.”

‘Difficult’ Market

“Entering 2011, housing market conditions remain difficult,” Jeffrey Mezger, president and chief executive officer of KB Home, said in a Jan. 7 statement. “While there are indications that the overall economy has started to recover, the lack of improvement in employment and consumer confidence is likely to continue to hinder a sustained housing recovery.”

Builders are not optimistic. The National Association of Home Builders/Wells Fargo confidence index, due on Jan. 18, rose to 17 this month from 16 in December, according to economists surveyed. Readings below 50 mean more respondents said conditions were poor. The measure reached a record low of 8 in January 2009.

Among other reports due this week, regional Fed reports may show manufacturing in the New York region expanded in January for a second month, while factories in the Philadelphia area grew at a slower pace, economists projected in the Bloomberg survey.

                        Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Empire Manu. Index        1/18      Jan.      10.6      13.0
NAHB Housing Index        1/18      Jan.       16        17
Housing Starts ,000’s     1/19      Dec.      555       550
Housing Starts MOM%       1/19      Dec.      3.9%     -0.9%
Building Permits ,000’s   1/19      Dec.      544       555
Building Permits MOM%     1/19      Dec.     -1.4%      2.0%
Initial Claims ,000’s     1/20     15-Jan     445       425
Cont. Claims ,000’s       1/20     8-Jan      3879      3985
Exist Homes Mlns          1/20      Dec.      4.68      4.86
Exist Homes MOM%          1/20      Dec.      5.6%      3.8%
LEI  MOM%                 1/20      Dec.      1.1%      0.6%
Philly Fed Index          1/20      Jan.      20.8      20.4
==============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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