The housing market took another step back in June as construction and purchases dropped, and a gauge of the outlook for growth signaled the expansion will lose steam, economists said before reports this week.
Builders began work on 580,000 houses last month at an annual rate, down 2.2 percent from May and the slowest pace this year, according to the median estimate of 61 economists surveyed by Bloomberg News before Commerce Department data due July 20. Other reports may show sales of existing homes decreased for a second month and the index of leading indicators declined for the first time in more than a year.
The expiration of a buyer tax credit has caused housing to retreat, showing the industry that precipitated the recession cannot sustain a recovery absent job growth. The financial turmoil caused by the European debt crisis has shaken confidence in the world’s largest economy, raising the risk that spending and employment will cool.
“At a minimum, we’re headed for a soft patch and possibly an extended period of slow growth,” said Julia Coronado, a senior economist at BNP Paribas in New York. “There is a lot of uncertainty about where housing goes from here. Now that we’re in the world ex-tax credits, it’s not clear how deep the pool of demand is for housing.”
Federal Reserve Chairman Ben S. Bernanke will deliver his semiannual report on the economy to members of Congress on July 21. Policy makers last month predicted the expansion will be too slow over the next two years to return to the 5 percent to 5.3 percent jobless rate that they consider full employment, according to minutes of the meeting released last week.
Fewer Permits
Housing’s inability to maintain a rebound is one reason the economic recovery is not gaining speed. Building permits, a sign of future construction, were little changed at a 575,000 annual pace, economists project the Commerce Department’s construction report will also show.
The projected drop in housing starts would follow a 10 percent decrease in May after the deadline to sign purchase agreements, and become eligible to receive a government credit worth as much as $8,000, lapsed on April 30.
Sales of existing homes fell to a 5.1 million annual rate in June from 5.66 million the prior month, economists forecast before a July 22 report from the National Association of Realtors. In April, purchases reached a 5.79 million pace, the highest level since the tax credit was originally due to expire in November.
Tax Credit
Existing sales, which are tallied when a deal closes, may still have been influenced by the government program last month since the closing deadline was June 30 for those meeting the April 30 signing cutoff. The closing deadline was extended this month to Sept. 30 to make sure prospective buyers have enough time to complete transactions.
Homebuilders turned even more pessimistic in July, the National Association of Home Builders/Wells Fargo confidence index on July 19 may show, according to economists surveyed. The index fell to 16 from 17 in June. Readings below 50 mean more respondents said conditions were poor.
Builders compete with inventories of existing homes that are expanding because of mounting foreclosures. Home seizures climbed 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
KB Home, the U.S. homebuilder that targets first-time buyers, reported a wider-than-estimated loss and a drop in new orders in its second quarter.
Sales Unpredictable
“A lack of predictability in the overall sales environment will likely impact our full-year deliveries and could potentially extend our outlook for profitability,” KB Home Chief Executive Officer Jeffrey Mezger said June 25 in a conference call.
Home builders have underperformed the broader stock market this year. The Standard & Poor’s Supercomposite Homebuilder Index has fallen about 11 percent so far this year, compared with a 4.5 percent decline for the S&P 500 Index.
Housing indicators haven’t been the only ones showing weakness of late. Manufacturing contracted in June by the most in a year, figures from the Fed showed last week. Other reports showed retail sales fell for a second month and consumer sentiment this month declined to the lowest level in a year.
Firings remain elevated. A Labor Department report on jobless claims on July 22 may show initial claims rose to 445,000 last week from 429,000 the prior week, economists forecast.
The index of leading economic indicators probably fell 0.3 percent in June after rising 0.4 percent in May, according to economists’ estimates before the July 22 release of the Conference Board’s measure of the outlook for the next three to six months.
Analysts have been marking down growth forecasts this month. Economists at JPMorgan Chase & Co. in New York project the economy grew at a 2.1 percent pace from April through June, down from their 3.2 percent estimate in early July. They also reduced the average estimate for the second half of the year by a half percentage point to 2.75 percent.
