Homebuilding Probably Climbed With Sales: U.S. Economy Preview

Sales of previously owned homes and construction of new houses probably accelerated in February, highlighting the strength in residential real estate that’s helping propel the U.S. expansion, economists said before reports this week.

Purchases of existing properties increased to a 5 million annual rate, the strongest since November 2009, and housing starts rose to a 915,000 pace, according to the median forecasts in a Bloomberg survey. Other data may show an index of leading economic indicators advanced for a third straight month.

Americans are gaining confidence in the housing market as home values stabilize, the outlook for employment brightens and mortgage rates hover near record lows. Federal Reserve officials meeting this week will probably adhere to their plan of record monetary policy stimulus that’s reduced borrowing costs and helped sustain the expansion.

“Housing has definitely improved,” said Sean Incremona, senior economist at 4Cast Inc. in New York and the top forecaster for housing starts, according to data compiled by Bloomberg. “There’s progress and it looks to be sustainable. Cheap financing is definitely helping. We can thank the Fed for that.”

Limited inventories and resilient sales are benefiting builders including PulteGroup Inc. and Lennar Corp., showing housing will keep contributing to growth this year after emerging as an economic bright spot in 2012.

Last Year

Builders began work on 779,900 homes last year, a 28.1 percent increase from 2011 and the most in four years. Housing starts remain well below the 2.07 million in 2005 at the peak of the housing boom.

The Commerce Department will issue its February housing starts data on March 19. The National Association of Realtors report on sales of previously owned homes is due March 21.

Existing-home sales reached a peak of 7.25 million in September 2005 before falling to a low of 3.45 million in July 2010, after the subprime-lending collapse pushed the economy into its last recession. The Realtors group has said recent sales have been restrained by a lack of properties on the market.

Lean inventories and a pickup in homebuyer traffic have boosted builder sentiment. A report tomorrow from the National Association of Home Builders and Wells Fargo is projected to show an increase in confidence in March.

The Standard & Poor’s Supercomposite Homebuilding Index has surged 59.4 percent in the last year, compared with an 11.3 percent gain in the broader S&P 500.

Foreclosure Filings

Rising home sales are pushing up prices and reducing mortgage defaults. Foreclosure filings, including default notices, auctions and repossessions, were down 25 percent in February from a year earlier, according to a March 14 report from RealtyTrac Inc., an Irvine, California-based data company.

At the same time, some areas of the country are struggling to improve. New York, New Jersey, Florida and Nevada are among 16 states that reported an increase in foreclosure starts in February, according to RealtyTrac.

AV Homes Inc., a developer based in Poinciana, Florida, that specializes in adult communities, reported a fourth-quarter loss driven by falling property values in Florida and Arizona. Still, the company is purchasing land for new developments as buyers return to the market, President and Chief Executive Officer Roger Cregg said.

Regaining Confidence

“The value of their largest asset, their home, has diminished and that has caused them to lose confidence and delay their move and purchase of another home,” Cregg said on a March 15 earnings call. “We believe that as home values continue to rise, they will regain their confidence and be returning to the market.”

To ensure housing, the labor market and the rest of the economy keep improving, Fed policy makers are unlikely to scale back their $85 billion in monthly asset purchases, known as quantitative easing, at the conclusion of the two-day meeting on March 20, according to Roberto Perli, a managing director at International Strategy & Investment Group Inc. in Washington and a former economist for the Fed’s Division of Monetary Affairs.

“Based on recent statements by various policy makers as well as the content of the minutes of previous meetings, changes to the pace of QE will not be seriously on the table,” Perli wrote in a March 15 note to clients.

Borrowing costs remain favorable. The average rate on a 30-year fixed mortgage was 3.63 percent in the week ended March 14, down from 3.92 percent a year ago, according to McLean, Virginia-based Freddie Mac.

Another report this week from the Conference Board, a New York-based research group, is projected to show the economy will keep expanding into the second half of 2013. The index of leading indicators rose 0.3 percent in February after a 0.2 percent gain a month earlier, figures on March 21 may show, according to the median forecast in a Bloomberg survey.

                    Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
NAHB Housing Index        3/18     March       46        47
Housing Starts ,000’s     3/19      Feb.      890       915
Housing Starts MOM%       3/19      Feb.     -8.5%      2.8%
Building Permits ,000’s   3/19      Feb.      904       923
Building Permits MOM%     3/19      Feb.     -0.6%      2.1%
Initial Claims ,000’s     3/21     16-Mar     332       344
Cont. Claims ,000’s       3/21     9-Mar      3024      3063
Markit Manu. PMI          3/21    March P     54.3      54.8
FHFA HPI MOM%             3/21      Jan.      0.6%      0.7%
Philly Fed Index          3/21     March     -12.5      -3.0
Exist Homes Mlns          3/21      Feb.      4.92      5.00
Exist Homes MOM%          3/21      Feb.      0.4%      1.6%
LEI  MOM%                 3/21      Feb.      0.2%      0.3%
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