U.S. Economy: Pending Home Resales, Construction Spending Rise

Discussion in 'Economics' started by Tom B, May 4, 2009.

  1. Tom B

    Tom B

    U.S. Economy: Pending Home Resales, Construction Spending Rise

    By Courtney Schlisserman and Sho Chandra

    May 4 (Bloomberg) -- Pending sales of U.S. existing homes posted their first back-to-back gain in almost a year in March and construction spending ended a six-month slide, spurring a rally in stocks and sell-off in Treasuries.

    The number of Americans signing contracts to buy previously owned homes jumped 3.2 percent after a 2 percent gain in February, the National Association of Realtors said today in Washington. Construction unexpectedly rose 0.3 percent as gains in commercial and government projects overshadowed a continued drop in homebuilding, Commerce Department data showed.

    Benchmark stock indexes climbed to levels unseen since January, and Treasuries fell for a fifth day, after the reports underscored that the worst of the recession is past. Shares of builders including Hovnanian Enterprises Inc., Lennar Corp. and Pulte Homes Inc. rallied on optimism the four-year housing slump will end this year.

    “People are worrying a bit less about a depression and starting to see signs of recovery,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut.

    The Standard & Poor’s 500 index was up 2.3 percent to 897.72 at 11:19 a.m. in New York. The S&P builder supercomposite index was up 8.1 percent. The yield on the benchmark 10-year note rose to 3.17 from 3.16 percent late on May 1.

    Economists forecast the pending sales index would be unchanged, according to the median of 32 projections in a Bloomberg News survey. Estimates ranged from a 2.3 percent drop to an increase of 3.5 percent.

    Leading Index

    Pending resales are considered a leading indicator because they track contract signings. NAR’s existing-home sales report tallies closings, which typically occur a month or two later. The group, whose pending data goes back to January 2001, started publishing the index in March 2005.

    Two of four regions saw an increase, today’s report showed. Purchases rose 8.5 percent in the South and 3.9 percent in the West, and fell 5.7 percent in the Northeast and 1 percent in the Midwest.

    Other reports point to some stabilization in the housing market. The decline in home prices in 20 major U.S. cities slowed during February for the first time since 2007, the S&P/Case-Shiller index showed on April 28. Also, sales of previously owned homes in March held above a decade low reached two months earlier, NAR, the realtors group, said April 23.

    Government efforts to lower borrowing costs and unclog lending may be starting to pay off. The average rate on a 30- year fixed mortgage fell below 5 percent for the second time on record in the week ended March 19 and has held below that since, according to Freddie Mac. The rate reached a record low of 4.78 percent in the week ended April 2.

    More Affordable

    NAR’s affordability index, which tracks mortgage rates, home prices and incomes, surged in February to the highest level in 20 years of data.

    Even so, a weak job market is one reason economists say the housing market will be slow to rebound and foreclosures may keep rising. A total of 803,489 properties received a default or auction notice or were seized in the first quarter, the highest since records began four years ago, according to RealtyTrac Inc., an Irvine, California-based seller of mortgage data.

    Distressed properties accounted for about 50 percent of all home resales in March, according to NAR, up from about 45 percent in previous months. First-time buyers accounted for about 51 percent of sales.

    Builders are struggling as buyers flock to foreclosed properties at bargain prices.

    Builder Losses

    Ryland Group Inc. last week reported a wider first-quarter loss. The company closed on 1,049 homes in the period, 32 percent less than a year earlier. New orders fell 38 percent to 1,347 and the inventory of unsold homes decreased 22 percent to 501 as of March 31.

    The Federal Reserve last week refrained from increasing purchases of Treasuries and mortgage securities, while keeping the benchmark interest rate between zero and 0.25 percent. The Fed said the pace of economic contraction “appears to be somewhat slower.”

    Spending on infrastructure projects is projected to increase in the coming months as state and local governments use funds from the $787 billion fiscal stimulus package.

    Commerce’s construction report showed non-residential building, including public projects, increased 2 percent in March. Compared with a year earlier, it was up 1.7 percent. Residential construction dropped 4.1 percent in March and was down 33 percent from a year earlier. Building of single-family houses slumped 52 percent from March 2008.

    The U.S. economy contracted at a 6.1 percent annual rate in the first quarter, led by declines in business investment and housing. The better-than-projected March construction report prompted economists at Morgan Stanley to forecast government revisions will show a smaller contraction last quarter.