Sales of New Homes Probably Rose in U.S. as Mortgage Rates Fell
Demand for new U.S. homes probably rose in May for the second month as mortgage rates dropped, bolstering the residential real-estate market while other parts of the economy cool, economists said before a report today.
Sales climbed to a 346,000 annual rate, up 0.9 percent from a 343,000 pace in April, according to the median forecast of 56 economists surveyed by Bloomberg News. Data last week showed builders broke ground on more single-family houses last month and industry confidence climbed in June to a five-year high.
Falling borrowing costs and more affordable properties may keep luring buyers, even as a cooling job market and limited access to credit restrain the recovery. In a bid to reduce unemployment, sustain housing and prevent a global slowdown from stalling the expansion, the Federal Reserve last week extended a program to keep long-term interest rates low.
“While fears of an economic slowdown have mounted in recent weeks, the U.S. housing market has shown signs of an accelerated rebound,” Joseph Carson, director of global economic research at AllianceBernstein LP in New York, said in a June 22 note to clients. “Positive trends in housing starts and prices indicate that a budding recovery is under way, which may get further support from new monetary stimulus by the Fed.”
Bloomberg survey estimates for new-home sales, which are counted when contracts are signed, ranged from 327,000 to 360,000. The Commerce Department’s report is due at 10 a.m. in Washington.
In response to improving demand, builders broke ground on 516,000 single-family houses last month at an annual pace, up 3.2 percent from April and the most this year, the Commerce Department reported last week.
The Washington-based National Association of Home Builders/Wells Fargo sentiment index rose by 1 point this month to 29, the highest since May 2007, another report last week showed.
United Technologies Corp. (UTX) and Lennox International Inc. (LII), makers of heating and air conditioning units, are among companies benefitting from developers’ positive outlook. Lennox, based in Richardson, Texas, had a 40 percent increase in sales to builders in the first quarter. United Technologies, in Hartford, Connecticut, forecasts about 700,000 housing starts this year, Chief Financial Officer Gregory Hayes said.
“The expectation is we’re not going to see a huge recovery in the U.S. residential marketplace, but we should see a steady recovery,” Hayes said at a June 14 conference. “Residential is coming back, but it’s very, very slow.”
The stabilization in housing has boosted builder shares this year. The Standard & Poor’s Supercomposite Homebuilder Index (S15HOME) has climbed 33 percent so far this year, compared with a 6.2 percent gain for the broader S&P 500.
Residential construction hasn’t contributed to economic growth over the course of an entire year since 2005, when it accounted for 0.4 percentage point of the 3.1 percent increase in gross domestic product. From 2006 through 2009, the homebuilding slump subtracted 0.8 percentage point from growth on average. The declines diminished over the past two years.
Newly constructed houses made up 6.7 percent of the residential market last year, down from a high of 15 percent during the boom of the past decade.
Sales of existing homes declined in May as fewer distressed properties reached the market, the National Association of Realtors reported last week. The decline in transactions involving foreclosures and short sales, where a lender agrees to accept less than the balance of the mortgage, helped push the median price of a previously owned house up 7.9 percent from the same time last year, the biggest 12-month gain since February 2006.
Less competition from existing houses and even lower mortgage rates may keep spurring the market. The average rate on a 30-year fixed loan dropped to 3.66 percent last week, the lowest in data going back to 1972, according to Freddie Mac.
The central bank last week aimed to keep borrowing costs low. Policy makers announced they will expand the Operation Twist program to extend the maturities of assets on its balance sheet. They said they stood ready to take further action to put unemployed Americans back to work. Fed officials also lowered their outlook for growth and employment.
Bloomberg Survey =========================================== New Home New Home Sales Sales ,000’s MOM% =========================================== Date of Release 06/25 06/25 Observation Period May May ------------------------------------------- Median 346 0.9% Average 346 0.9% High Forecast 360 5.0% Low Forecast 327 -4.7% Number of Participants 56 56 Previous 343 3.3% ------------------------------------------- 4CAST 337 -1.8% ABN Amro 347 1.0% Action Economics 345 0.6% Ameriprise Financial 348 1.5% Analytical Synthesis 351 2.3% Banca Aletti 353 2.9% Barclays 345 0.6% BMO Capital Markets 343 0.0% BNP Paribas 330 -3.8% BofA Merrill Lynch 350 2.0% Briefing.com 350 2.0% Capital Economics 345 0.6% CIBC World Markets 345 0.6% Citi 360 5.0% ClearView Economics 350 2.0% Comerica 335 -2.3% Credit Agricole CIB 351 2.3% Credit Suisse 360 5.0% Danske Bank 342 -0.3% Desjardins Group 350 2.0% Deutsche Bank Securities 345 0.6% Exane 345 0.6% First Trust Advisors 345 0.6% Helaba 345 0.6% HSBC Markets 349 1.8% Hugh Johnson Advisors 345 0.6% IDEAglobal 340 -0.9% IHS Global Insight 355 3.5% Informa Global Markets 335 -2.3% ING Financial Markets 350 2.0% Intesa Sanpaulo 350 2.0% Janney Montgomery Scott 346 0.9% Jefferies & Co. 340 -0.9% John Hancock Financial 347 1.0% Landesbank Berlin 355 3.5% Landesbank BW 350 2.0% Maria Fiorini Ramirez 345 0.6% MET Capital Advisors 327 -4.7% Moody’s Analytics 354 3.2% Morgan Stanley & Co. 350 2.0% National Bank Financial 350 2.0% Natixis 346 0.9% Nomura Securities 357 4.1% OSK Group/DMG 341 -0.6% Pierpont Securities 355 3.5% PNC Bank 335 -2.3% RBC Capital Markets 335 -2.3% Scotiabank 337 -1.8% SMBC Nikko Securities 345 0.6% Standard Chartered 335 -2.3% Stone & McCarthy Research 350 2.0% TD Securities 346 0.9% University of Maryland 345 0.6% Wells Fargo & Co. 351 2.3% Westpac Banking Co. 347 1.0% Wrightson ICAP 350 2.0% =========================================
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