New U.S. Home Purchases Likely Held Steady

Purchases of new U.S. houses were probably little changed in October as the industry headed for its worst year on record, economists said before a report today.

Sales came in at a 313,000 annual pace last month, the same as in September, according to the median estimate of 57 economists surveyed by Bloomberg News. That would put the monthly average for the year at 304,000, less than the 323,000 in 2010 that was the lowest since data-keeping began in 1963.

An overhang of distressed properties in the foreclosure pipeline that is weighing on prices may keep luring whatever buyers there are to existing rather than new houses. A jobless rate that has been hovering around 9 percent or higher for more than two years signals demand will take time to pick up.

“We need to see stronger job growth before we see a sustained upward trend in housing demand,” said Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto.

Economists’ estimates in the Bloomberg survey ranged from 300,000 to 330,000. The Commerce Department’s report is due at 10 a.m. New York time.

Sales of previously owned homes, which make up about 94 percent of the market, unexpectedly rose 1.4 percent to a 4.97 million annual rate in October, figures from the National Association of Realtors showed Nov. 21. The median price dropped 4.7 percent from October 2010. Cash deals accounted for 29 percent of the transactions, while distressed properties, including foreclosures and short sales, made up 28 percent.

Leading Indicator

New home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later.

Builder shares have suffered this year as the competition from existing homes heated up. The Standard & Poor’s Supercomposite Homebuilder Index has dropped 18 percent so far in 2011, compared with a 7.9 percent decrease in the broader S&P 500.

With falling home prices continuing to weigh on household wealth and consumer spending, some Federal Reserve officials have called for more accommodative policy.

Fed Bank of New York President William C. Dudley said this month that if the central bank opted to purchase more bonds to lower interest rates and stimulate the economy, “it might make sense” for much of those purchases to consist of mortgage- backed securities, which would have a “greater direct impact on the housing market.”

No Forecast

The lack of demand this year came as a shock to builders like Atlanta-based Beazer Homes USA Inc. (BZH), making them reluctant to forecast the outlook.

“Even though I do believe that national housing starts are likely to be higher in 2012, we have not assumed any improvement in national housing activity as part of our financial planning for the year,” Allan Merrill , Beazer’s chief executive officer said during a Nov. 15 call with analysts. “Our predictions about improving national housing starts for fiscal year 2011 proved to be substantially too optimistic, so I’m reluctant to go on the record with any more macro predictions.”

                        Bloomberg Survey

=====================================
                          New Home
                             Sales
                            ,000’s
=====================================

Date of Release              11/28
Observation Period            Oct.
-------------------------------------
Median                         313
Average                        314
High Forecast                  330
Low Forecast                   300
Number of Participants          57
Previous                       313
-------------------------------------
4CAST Ltd.                     315
ABN Amro Inc.                  308
Action Economics               308
Ameriprise Financial Inc       313
Banca Aletti & C spa           325
Bantleon Bank AG               320
Barclays Capital               310
BMO Capital Markets            310
BNP Paribas                    310
BofA Merrill Lynch Resear      305
Briefing.com                   310
Capital Economics              325
CIBC World Markets             315
Citi                           315
ClearView Economics            310
Commerzbank AG                 325
Credit Agricole CIB            310
Credit Suisse                  320
Daiwa Securities America       310
DekaBank                       320
Desjardins Group               305
Deutsche Bank Securities       320
DZ Bank                        305
First Trust Advisors           307
Goldman, Sachs & Co.           313
HSBC Markets                   310
Hugh Johnson Advisors          310
IDEAglobal                     320
IHS Global Insight             320
Informa Global Markets         315
ING Financial Markets          305
Insight Economics              310
Intesa-SanPaulo                320
Janney Montgomery Scott L      313
Jefferies & Co.                300
MET Capital Advisors           310
Moody’s Analytics              319
Morgan Keegan & Co.            310
Morgan Stanley & Co.           325
Natixis                        320
Nomura Securities Intl.        310
OSK Group/DMG                  315
Pierpont Securities LLC        325
PNC Bank                       300
Raymond James                  320
RBC Capital Markets            300
Schneider Foreign Exchang      310
Scotia Capital                 320
SMBC Nikko Securities          330
Stone & McCarthy Research      300
TD Securities                  315
UBS                            320
University of Maryland         309
Wells Fargo & Co.              320
WestLB AG                      310
Westpac Banking Co.            319
Wrightson ICAP                 320
=====================================

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

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

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