Existing home sales up?
The National Association of Realtors' report is scheduled for release today, and home resales for October are projected to rise to the highest level in more than two years as first-time buyers, anticipating that a tax credit would soon expire, rushed to beat the clock. Sales are expected to show a 1.4 percent increase to a seasonally adjusted annual rate of 5.65 million, up from 5.57 million in September, according to economists polled by Thomson Reuters. If this turns out to be true, it would be the best month for home sales since July 2007.
But sales are likely to drop over the winter as buyers hibernate for a few months without the looming tax credit deadline, said Pat Lashinsky, chief executive of online real estate brokerage ZipRealty Inc. Over the summer, the housing market started to rebound from the worst downturn in decades, aided by aggressive federal interventions to lower mortgage rates and bring more buyers into the market. But experts forecast that prices will fall again. Most say they will hit a new low next spring, perhaps falling another 5 to 10 percent, as more foreclosures get pushed onto the market. Foreclosures also are a growing problem. The Mortgage Bankers Association said last week that a record-high 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. Driven by rising unemployment, fixed-rate loans made to borrowers with good credit accounted for nearly 33 percent of new foreclosures last quarter. That compares with 21 perce nt a year ago.
Waves of future debt payments
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode. “The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
Forget existing home sales - what about new homes?
The Wall Street Journal points out that even as U.S. existing-home sales have gone up by about 25% from January through September of this year and probably hit a new 2009 high last month, it doesn't mean the housing market or the broader economy is following suit. Construction and sales of new homes are typically looked to as a better indicator of U.S. economic activity, because Construction feeds directly into the calculation of U.S. gross domestic product, while sales directly influence GDP only through brokers' fees and commissions. Amid a glut of excess inventory and a growing foreclosure pipeline, the signal from new homes right now is much more cautious.
In fact, last week the Commerce Department reported that new home construction sank 10.6% in October to an annualized building rate of 529,000 units, the lowest level since April. Many economists in turn lowered their estimates of the current quarter's GDP toward 3% from 3.5%. In a short trading week crammed with data ahead of the Thanksgiving holiday, today's existing-home sales report is likely to grab the market's attention, but Wednesday's read on new home sales will probably be a more telling indicator of what's in store for the economy.
Economy up, jobs down in 2010
According to the November survey by the National Association of Business Economics (NABE), forecasters now expect the economy to grow at a 3% annual rate during the last three months of this year, up from their prediction of 2.4% growth in October. The economists also raised their forecast for growth during every quarter of 2010. They now expect a 3.2% rise in economic activity over the course of the next four quarters, up from their previous estimate of 3%. But the outlook isn't as good for the record 31 million Americans unable to find full-time jobs - the economists pushed back their expectations for when U.S. payrolls will start to grow again to the second quarter of 2010. They previously had predicted a gain of 12,000 jobs a month in the first quarter. The nation's unemployment rate hit 10.2% in October -- higher than expected.
The continued problems in the labor market, combined with disappointing reports about housing and retail sales recently, have raised concerns about a so-called "double dip" recession. Only 15% said another round of economic stimulus would be appropriate, while 40% said they would leave the stimulus package approved early this year unchanged. The final 45% said they would like to see a cut in the stimulus money already approved but not yet spent. 55% of the economists said they are extremely concerned about the amount of federal debt over the next five years. Still, the economists surveyed were slightly more optimistic about a recovery in housing and the likelihood that consumer spending would increase. They were also more bullish about the stock market, forecasting that the S&P 500 will reach 1,199 at the end of 2010, a gain of about 10% from Friday's closing level.
Major home builder takes loss
D.R. Horton, the No. 2 U.S. homebuilder, reported a much larger-than-expected quarterly loss on Friday, sending its shares down nearly 7 percent even though it also said orders increased. Analysts on average were expecting a loss of 30 cents a share, according to Thomson Reuters, but Horton said its loss was 73 cents a share in the fourth quarter ended Sept. 30 from $2.53 per share, a year earlier. The latest results included charges of $192.6 million for losses on land values and write-offs of costs from land the company decided not to acquire. Revenue fell 42 percent to $1.0 billion. The analysts' average estimate was $1.1 billion.
On a brighter note, orders rose to 5,008 homes from 3,977 last year, and the number of homes under contract increased to 5,628, from 5,297. Most builders have reported better-than-expected order numbers this past quarter, but Horton's number was especially impressive against a flat forecast, JPMorgan analyst Michael Rehaut wrote in a client note. "Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence," Chairman Donald Horton said in a statement.
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