U.S. Home Resales Due for New Low, Citigroup Says: Chart of Day

Home resales in the U.S. may have tumbled to a record low in July as the expiration of federal tax credits dragged down the housing market, according to Josh Levin, a Citigroup Inc. analyst who follows homebuilders.

The CHART OF THE DAY shows how his estimate for last month, an annual rate of 4.1 million units, compares with the monthly totals since the National Association of Realtors consolidated sales figures for single-family homes and condominiums in 1999.

Levin’s projection -- a departure from his usual research, he wrote yesterday in a report -- is about 10 percent below the current low. Sales of existing homes hit bottom in November 2008 at a rate of 4.53 million, matched in January 2009. The estimate amounts to a 24 percent plunge from June’s pace of 5.37 million.

Investors don’t appear to anticipate a new low, he wrote, even though the association’s data on pending home sales point in that direction. Its sales index fell 30 percent in May after an $8,000 tax credit available to first-time homebuyers and a $6,500 credit for repeat buyers lapsed. July resale figures in 15 local areas confirm the outlook, he added.

This means a disappointing report would pose an “unusually elevated” risk for homebuilding stocks, Levin wrote. While the analyst affirmed a favorable view of the industry, partly because home resales are a lagging indicator, he added: “Investors who disagree should consider our prediction and position themselves accordingly.”

Two out of three economists who provided existing-home sales estimates to Bloomberg yesterday predicted the July rate, set for release on Aug. 24, will exceed the record low. Ward McCarthy of Jefferies & Co. called for 5.4 million and Action Economics LLC’S Michael Englund put the figure at 4.75 million. Wrightson ICAP, on the other hand, expects a 4.3 million pace.

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