comments on housing report
back to business chaps - what do you make of the latest housing report ? The figures for July represent May sales, and it looks like a long term downtrend in housing is underway.
the question is when and how the consumer will pull back on spending, which is likely to reduce GDP by 2%, taking the US close to rrecession.
Also BCA are calling for downward revisions of corp profits as rising costs, interest rates, wages and falling margins eat into profits.
here is article:
"Aug. 23 (Bloomberg) -- Sales of previously owned U.S. homes fell in July to the lowest in more than two years, a slowdown that may lead the Federal Reserve to keep interest rates steady for a second month.
Purchases declined 4.1 percent, more than economists forecast, to an annual rate of 6.33 million, the National Association of Realtors said today in Washington. Sales fell 11.2 percent from a year earlier and the supply of unsold homes climbed to a record.
The report comes a day after Chicago Fed President Michael Moskow said a sharp decline in housing, which by some estimates accounted for more than half of growth over the last three years, would be a risk to the economy. While Moskow also warned of higher interest rates to stem inflation, economists say slackening growth is more likely to stay the Fed's hand.
``This plays into the Fed's hope and forecast that growth is going to stay moderate and that the pressures we are seeing on inflation will be transitory,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``If they aren't done yet, they are almost finished.''
Shares of residential construction companies tumbled. The 16-member Standard & Poor's Supercomposite Homebuilding Index dropped 2.3 percent. The S&P 500 lost 0.4 percent to 1293.13 at 12:40 p.m. in New York.
`Drag on Consumer'
``Weakness in the housing market will be a drag on consumer spending in the near-to-medium term, thereby permitting the Fed to stay on hold,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York.
Rising mortgage rates, following a surge in prices during the five-year housing boom, have made home purchases less affordable than at any time in almost two decades, according to the Realtors' group.
Resales were expected to drop to an annual rate of 6.55 million, the median estimate of 61 economists in a Bloomberg News survey, from June's originally reported 6.62 million. Economists' forecasts ranged from 6.35 million to 6.75 million.
The number of unsold homes on the market at the end of July jumped to 3.86 million homes, the highest since records began in 1999. There was 7.3 months' supply at the current sales pace, the most since 1993.
The median price of an existing home rose 0.9 percent in July from a year ago to $230,000, the Realtors group said.
Existing home sales account for about 85 percent of the housing market and are recorded when a contract is closed.
New Home Sales
The focus now shifts to new home sales, a more timely indicator because transactions are counted when a contract is signed. A report from the Commerce Department tomorrow will probably show new home sales declined to an annual rate of 1.1 million in July from 1.131 million in June, according to the median estimate of economists in a Bloomberg survey.
The National Association of Home Builders/Wells Fargo's index of builder confidence plunged this month to the lowest level in 15 years, a report showed last week.
Toll Brothers Inc., the largest U.S. builder of luxury homes, said yesterday net income in the three months ended July 31 fell 19 percent, the first drop in four years. The builder cut its fourth-quarter profit forecast as rising interest rates hurt demand for its houses, which sell for as much as $1.5 million.
The S&P Supercomposite Homebuilding Index, which includes Toll Brothers, has dropped almost 38 percent since the beginning of the year.
Condominium Sales Rise
Resales of single-family homes fell 5 percent last month to an annual rate of 5.51 million, the report said. Sales of condos and co-ops rose 2.8 percent to an 818,000 rate.
Purchases fell in all regions of the country. They dropped 5.4 percent in the Northeast, 5.9 percent in the Midwest, 1.2 percent in the South and 6.4 percent in the West.
``We're more likely nationally to see a soft landing rather than a bubble bursting,'' said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies in Cambridge, Massachusetts. ``People are finding it more difficult, with higher mortgage rates, to buy a home. Rents are starting to go up again.''
David Lereah, the Realtors chief economist, said the association will lower its forecast for existing-home sales. Previously, the group expected resales to decline 6.5 percent to 6.61 million in 2006, from last year's record 7.08 million.
Some economists predict prices will fall as more homes sit unsold, especially on the new homes market, where builders and investors may cut prices to get rid of properties.
Home Prices
``There's still some room for home prices to come down a bit,'' said Bob Moulton, president of Manhasset, New York-based Americana Mortgage Group. ``Buyers have much more of a choice now. All that inventory out there is going to force prices down.''
The Fed raised the benchmark interest rate 17 straight times since 2004 to control inflation, and left the rate unchanged at 5.25 percent on Aug. 8. While housing is slowing gradually so far, a sudden slump may hurt consumer spending, economists said.
``It's very important that the Fed understand the fragile state of the housing market,'' Lereah said. ``It's very important that the Fed maintain the status quo, keep rates where they are.''
`Softening'
A recent study by the Chicago Federal Reserve Bank says the surge in the U.S. housing market since 2001 is linked to gains in wealth and the introduction of innovative mortgages and has little to do with speculative fever that characterizes bubbles.
``We currently are seeing a good deal of softening in housing markets, and home prices are increasing at a slower rate,'' Moskow said yesterday in prepared remarks to the McLean County Chamber of Commerce in central Illinois. ``Even if prices did decline nationally, history suggests that the impact on consumer spending would be modest and gradual.''
Not all economists agree with such a sanguine outlook. The slump in housing has raised the chances the economy will fall into recession next year to at least 40 percent, according to David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York.
Economists at Merrill Lynch estimate housing contributed 2 percentage points to growth, or about 60 percent, over the last 3 years. The wealth effect from rising home prices boosted consumer spending along with the contribution from construction and housing-related employment gains, they said.
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