New-Home Sales in U.S. Probably Rose to Second-Lowest on Record

Sales of new U.S. homes rose in June to the second-lowest level on record, indicating the industry that sparked the recession is having difficulty sustaining a recovery following the end of a government tax credit, economists said before a report today.

Purchases climbed 3.7 percent to a 311,000 annual pace last month, according to the median estimate of 60 economists surveyed by Bloomberg News. The rate would be second only to May’s 300,000 as the lowest since data began in 1963.

“The housing market is languishing at very low levels,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “You’re seeing the effects of the tax credit fade, revealing the underlying weakness in sales.”

A lack of jobs is shaking Americans’ confidence in the recovery, overshadowing a drop in mortgage rates that has made home buying more affordable. Mounting foreclosures are also swelling the inventory of previously owned houses on the market, prompting builders to cut back and indicating declines in construction will restrain the economic recovery.

The Commerce Department’s report is due at 10 a.m. in Washington. Estimates ranged from 290,000 to 360,000.

To become eligible for a federal incentive worth up to $8,000, buyers had to sign contracts by April 30 and close deals by the end of last month. The surge in demand prior to the April deadline prompted the government this month to extend the closing deadline until Sept. 30 to ensure buyers had enough time to complete transactions.

Credit’s Influence

Sales of new houses, which are calculated when a contract is signed, plunged an unprecedented 33 percent in May following the expiration of the credit after reaching an almost two-year high the prior month, a Commerce Department’s report showed last month.

Purchases of previously owned homes, which are tabulated when a contract closes, fell a less-than-forecast 5.1 percent in June, sustained by a backlog of deals waiting to settle, figures from the National Association of Realtors showed last week.

Builder shares have dropped this year as the housing outlook dimmed. The Standard & Poor’s Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has fallen 5.4 percent year-to-date, while the S&P 500 Index is down 1.1 percent.

With the deadline for signing a contract now past, it will be up to advances in the labor market to support home sales. Private U.S. companies added 83,000 jobs in June, fewer than economists had forecast, and initial claims for jobless benefits this month remain elevated.

Mounting Foreclosures

Another challenge to new home sales is the rising tide of foreclosures. 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.

NVR Inc., based in Reston, Virginia, said last week the original June 30 closing deadline to qualify for the tax incentive resulted in a “surge in settlement activity” in the second quarter, with closings jumping 63 percent from the same time a year earlier. New orders fell 6 percent in the second quarter to 2,559 units.

Homebuilders turned more pessimistic this month, with the National Association of Home Builders/Wells Fargo confidence index dropping to the lowest level since April 2009, according to data released last week.

                        Bloomberg Survey

                          New Home New Home
                             Sales    Sales
                            ,000’s     MOM%

Date of Release              07/26    07/26
Observation Period            June     June
Median                         311     3.7%
Average                        316     5.2%
High Forecast                  360    20.0%
Low Forecast                   290    -3.3%
Number of Participants          60       60
Previous                       300   -32.7%
Action Economics               320     6.7%
Aletti Gestielle SGR           320     6.7%
Ameriprise Financial Inc       310     3.3%
Banesto                        330    10.0%
Bank of Tokyo- Mitsubishi      320     6.7%
Barclays Capital               315     5.0%
BMO Capital Markets            310     3.3%
BNP Paribas                    310     3.3%                   295    -1.7%
Capital Economics              290    -3.3%
CIBC World Markets             315     5.0%
Citi                           340    13.3%
ClearView Economics            320     6.7%
Commerzbank AG                 310     3.3%
Credit Agricole CIB            330    10.0%
Credit Suisse                  290    -3.3%
DekaBank                       310     3.3%
Deutsche Bank Securities       330    10.0%
DZ Bank                        315     5.0%
Exane                          305     1.7%
First Trust Advisors           325     8.3%
Fortis                         306     2.0%
Helaba                         325     8.3%
HSBC Markets                   290    -3.3%
Hugh Johnson Advisors          320     6.7%
IDEAglobal                     345    15.0%
IHS Global Insight             309     3.0%
Informa Global Markets         320     6.7%
ING Financial Markets          310     3.3%
Intesa-SanPaulo                330    10.0%
J.P. Morgan Chase              310     3.3%
Janney Montgomery Scott L      310     3.3%
Jefferies & Co.                300     0.0%
Landesbank Berlin              350    16.7%
Landesbank BW                  315     5.0%
Maria Fiorini Ramirez Inc      300     0.0%
MFC Global Investment Man      305     1.7%
Moody’s            312     4.0%
Morgan Keegan & Co.            305     1.7%
Morgan Stanley & Co.           325     8.3%
Natixis                        305     1.7%
Nomura Securities Intl.        300     0.0%
Pierpont Securities LLC        360    20.0%
Raymond James                  310     3.3%
RBC Capital Markets            320     6.7%
Ried, Thunberg & Co.           300     0.0%
Scotia Capital                 310     3.3%
Societe Generale               310     3.3%
Standard Chartered             300     0.0%
State Street Global Marke      295    -1.7%
Stone & McCarthy Research      350    16.7%
TD Securities                  335    11.7%
Thomson Reuters/IFR            335    11.7%
UniCredit Research             325     8.3%
University of Maryland         340    13.3%
Wells Fargo & Co.              290    -3.3%
WestLB AG                      320     6.7%
Westpac Banking Co.            300     0.0%
Woodley Park Research          342    14.0%
Wrightson Associates           300     0.0%
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