Tag Archives: US Property Market

It can withstand removal of govt and Fed stimulus plans: economists

The US housing market is poised to withstand the removal of government and Federal Reserve stimulus programmes and rebound later in the year, contributing to annual economic growth for the first time since 2006, economists say.

Increases in jobs, credit and affordable homes will help offset the end of the Fed’s purchases of mortgage-backed securities this month and the expiration of a federal homebuyer tax credit in April.

Sales will rise about 6 per cent this year, and housing will account for 0.25 percentage point of the 3.6 per cent growth, according to forecasts by Dean Maki, chief US economist for Barclays Capital in New York.

‘I would bet even odds that we’re at a bottom and that we’re going to see improvement in the coming months,’ said Karl Case, co-creator of the S&P/Case-Shiller Home Price Index and a professor of economics at Wellesley College in Wellesley, Massachusetts.

An improving market would allay concerns at the Fed that sales will relapse after the tax credit expires. It would also give it a freer rein to ultimately raise the interest rate for overnight loans among banks from near zero.

Homebuilders’ shares reflect the optimism. The 12-member Standard & Poor’s Supercomposite Homebuilding Index hit a five-month high on March 9 on speculation that the expanding economy will boost sales.

But recent housing data have been mixed. Sales of existing homes fell 7.2 per cent in January, while housing starts rose 2.8 per cent, according to statistics from the National Association of Realtors in Chicago and the Commerce Department in Washington.

Employment is key to the outlook, according to Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. ‘When people get jobs, that’s when they move or decide to buy a bigger house,’ he said.

As many as 300,000 new jobs may be added this month, the most in four years, thanks to an improvement in the weather, government hiring of temporary workers for the census and a growing economy, said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York.

Credit conditions may also be improving. A net 13.2 per cent of banks surveyed by the Fed in January reported that they tightened standards on prime mortgage loans in the fourth quarter, the smallest percentage since the central bank began tallying such data three years ago.

‘This is an important step in the right direction,’ Peter Hooper, chief economist at Deutsche Bank Securities in New York, and his colleagues wrote in a report to clients last month.

The housing market’s first hurdle comes at the end of this month, when the Fed completes its programme to purchase US$1.25 trillion of mortgage-backed securities and about US$175 billion of housing-agency debt.

The move probably won’t have much impact, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse Holdings in New York. Private demand will replace the central bank, keeping down the spread at which mortgage-backed securities trade to 10-year Treasury notes, he said.

He sees mortgage rates remaining ‘about where they are now’.

Once the Fed completes its purchases, the next obstacle for the market is the expiration of the tax credit for first-time home buyers.

The original credit helped boost existing-home sales by 4.9 per cent to 5.16 million last year, the first increase since 2005, according to the Realtors’ association. The credit, which was slated to end on Nov 30, was expanded and extended through April.

The final challenge for the housing market this year is the supply of available properties and the prospect that it may rise.

Foreclosures may increase to 2.2 million this year from a record 1.7 million last year, according to a forecast by Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania.

Source : Business Times – 17 Mar 2010

Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the US housing industry as it tries to recover from the worst slump in decades.

The Commerce Department reported yesterday that new home sales dropped 11.2 per cent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who had expected sales would rise about 5 per cent over December’s pace.

The January decline will heighten fears about the fledgling recovery in housing. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programmes are withdrawn. The sales decline in January marked the third-straight monthly drop following decreases of 3.9 per cent in December and 9.5 per cent in November.

The drop in sales pushed the median sales price down to US$203.500.

That was down 5.6 per cent from December’s median sales price of US$215,600, and off 2.4 per cent from year-ago prices. New home sales for all of 2009 had fallen by almost 23 per cent to 374,000, the worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than one million new home sales per year.

The Conference Board reported on Tuesday that its Consumer Confidence Index fell almost 11 points to 46 in February, pushing the index down to its lowest reading since last April. At 46, the index is a long way from the 90 reading that economists generally view as depicting healthy consumer attitudes.

Source : Business Times – 25 Feb 2010