Sunday, November 25, 2007

Home Sales May Drop, Durable Orders Stall: U.S. Economy Preview

By Shobhana Chandra

Nov. 25 (Bloomberg) -- U.S. home sales fell in October to the lowest in at least eight years and business spending stalled as the real-estate slump rippled through the economy, economists said before reports this week.

Total purchases of new and existing homes fell 1 percent to an annual pace of 5.75 million, according to the median estimate of economists surveyed by Bloomberg News. Orders for long- lasting goods were little changed following the biggest back-to- back declines in at least 15 years, a separate report may show.

The housing recession will persist into 2008 as banks tighten lending rules, foreclosures rise and prospective buyers wait for further price declines, economists said. Business and consumer spending are likely to cool this quarter, leading to a deceleration in growth.

``The reports could paint a soft picture at the start of the fourth quarter,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. ``The fundamentals in the housing sector are still weak with regards to demand and supply. On the manufacturing side, things aren't overly optimistic either.''

The National Association of Realtors is scheduled to report sales of existing homes on Nov. 28. Economists in the survey estimate that resales fell to a 5 million annual rate last month, the lowest level since comparable records began in 1999.

New-home sales, due from the Commerce Department a day later, slipped to a 750,000 pace, according to the survey median. Purchases were at an 11-year low 735,000 rate in August.

Existing-home sales account for about 85 percent of the market, and purchases of new homes make up the rest.

Timelier Gauge

New-home purchases are considered a timelier indicator because they are based on contract signings, while existing home sales are calculated when a contract closes, usually a month or two later.

D.R. Horton Inc., the second-largest U.S. homebuilder, on Nov. 20 reported a fiscal fourth-quarter loss and its worst annual results in at least a decade.

Next year will be ``more difficult'' than 2007, Donald Tomnitz, chief executive officer of D.R. Horton, said on a conference call. ``There's less volume, and the volume that is there is demanding better pricing.''

Home prices in 20 metropolitan areas probably dropped 5 percent in the 12 months to September, the most since record keeping began in 2001, a report from Standard & Poor's/Case- Shiller Nov. 27 is forecast to show.

Consumer Headwinds

Falling property values combined with rising fuel costs and reduced access to credit suggest consumer spending, which accounts for more than two-thirds of the economy, will slow.

Commerce Department figures due Nov. 30 may show spending grew 0.3 percent in October for a second month, according the survey median. Spending adjusted for inflation, the gauge used to calculate economic growth, was probably little changed, economists said.

Bank of America Corp. and JPMorgan Chase & Co. are among banks that have lowered growth forecasts in recent weeks, in part because of a projected slowdown in consumer spending. The economy is likely to grow at less than a 1 percent annual pace this quarter and next, according to economists at Bank of America.

Such an outcome would mark a sharp slowdown from the previous three months. Revised figures from the Commerce Department on Nov. 29 are forecast to show that gross domestic product rose at an annual rate of 4.9 percent from July through September, a percentage point more than the government estimated last month and the most in four years.

Work Off Inventories

A bigger jump in inventories than previously estimated will contribute to the revision, economists said. The need to work off some of those stockpiles this quarter will have a hand in the projected growth deceleration.

The Nov. 28 Commerce Department report on orders for durable goods, those made to last at least several years, may show that business investment in new equipment has also slackened, economists said.

Federal Reserve policy makers reduced their growth forecasts when they last met on Oct. 31, according to meeting minutes released last week. Central bankers projected the economy would grow between 1.8 percent and 2.5 percent in 2008, ``notably below'' their last forecast issued in July, the minutes said.

Investors almost universally expect strains in financial markets and the slowdown in growth will cause the Fed to again lower the target on the benchmark interest rate when policy makers next meet on Dec. 11.



Bloomberg Survey

Date Time Period Indicator BN Survey
Prior
11/27 10:00 Nov. Confidence-Conf. Board 91.0 95.6
11/28 8:30 Oct. Durable Goods Orders 0.0% -1.7%
11/28 10:00 Oct. Home Resales 5.00M 5.04M
11/29 8:30 3Q P GDP Price Index 0.8% 0.8%
11/29 8:30 3Q P Gross Domestic Product 4.9% 3.9%
11/29 8:30 11/24 Initial Jobless Claims 330K 330K
11/29 8:30 11/17 Continuing Claims 2575K 2566K
11/29 10:00 Oct. New Home Sales 750,000 770,000
11/30 8:30 Oct. Personal Income 0.4% 0.4%
11/30 8:30 Oct. Personal Spending 0.3% 0.3%
11/30 10:00 Nov. Chicago Purchasers 50.5 49.7
11/30 10:00 Oct. Construction Spending -0.3% 0.3%

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: November 25, 2007 10:03 EST

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