Sales of U.S. previously owned homes in June dropped less than forecast, sustained by a backlog of deals that will dry up when a government credit expires.
Purchases slipped for a second month, falling 5.1 percent to a 5.37 million annual rate, figures from the National Association of Realtors showed today in Washington. Transactions will be “very low” in coming months as the federal incentive ends, the group’s chief economist, Lawrence Yun, said in a news conference.
Other reports showed the economic outlook dimmed and more Americans filed applications for unemployment benefits, reinforcing signs of slowing growth. The data show why Federal Reserve Chairman Ben S. Bernanke reiterated today that central bankers stand ready to take additional action if the world’s largest economy “doesn’t continue to improve.”
“The overall picture is one of a very weak recovery,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Housing still has a lot of problems, and the labor market is going to be painfully slow. The message from Bernanke is pretty much that they’re not going to do anything on tightening until God knows when.”
Stocks and commodities rallied on improving profit forecasts at companies from United Parcel Service Inc. to AT&T Inc. The Standard & Poor’s 500 Index climbed 2 percent to a 4:00 p.m. close of 1,093.67 in New York. Oil topped $79 a barrel and copper rose for a fourth day.
Existing home sales were expected to decline to a 5.1 million pace, according to the median forecast of 74 economists in a Bloomberg News survey. Estimates ranged from 4.25 million to 6.2 million. May’s sales rate was 5.66 million, unrevised from the previous estimate.
The Conference Board’s index of leading indicators fell 0.2 percent in June, the second drop in the past three months, according to figures from the New York-based research group. The gauge points to the direction of the economy over the next three to six months.
“We’re looking at a very subdued recovery,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who forecast the 0.2 percent decline. “Companies are still very cautious to hire.”
Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed. Claims were projected to climb to 445,000, and estimates ranged from 420,000 to 460,000.
Bernanke, in testimony before the House Financial Services Committee today, said unemployment is “the most important” problem facing the economy. “We are ready and we will act if the economy does not continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting.”
Housing is one industry that will probably struggle. In order to receive a tax credit of up to $8,000, homebuyers had to sign contracts by the end of April and initially close deals by June 30. Sales of existing houses are tracked when a deal closes.
The government this month extended the closing deadline to Sept. 30 after the jump in demand through April meant some purchases would not have time to be processed.
“We’re seeing the first stage of the cooling as the tax-incentive purchases fall off,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who projected sales would drop to a 5.38 million pace. “We will see prices retreat as the demand falls off without the tax incentive.”
The number of homes on the market climbed 2.5 percent to 3.99 million. At the current sales pace, it would take 8.9 months to sell those houses, the most since August 2009.
The supply is likely to jump to 10 months or more in coming months as sales slow, said Yun of the Realtor group. The post-tax-credit slowdown may last as long as three or four months, more than he previously estimated, Yun said.
A 10 months’ supply has historically put pressure on home prices, he said. The median price of a previously owned house increased 1 percent to $183,700 from $181,800 in June 2009, the real-estate agents’ group said.
“It’s still a fragile situation in the housing market,” Yun said. “I hope it’s only two months but it could be three to four months with contracts remaining very weak.”
Foreclosures and short sales, usually not reflected in the NAR’s data, are boosting the so-called shadow inventory and competing with owners trying to sell properties. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
Sales at Miami-based Lennar, the third-biggest U.S. homebuilder by revenue, were running 20 percent to 25 percent lower last month than a year earlier as the expiration of the tax credit sapped demand, Chief Executive Officer Stuart Miller said June 24.
“The new-home market and housing in general still face serious headwinds from current economic and legislative conditions,” Miller said on a conference call with investors. “The prospect of additional delinquencies ahead continues to moderate this recovery as shadow inventory continues to be absorbed.”