Sales of new homes in the US last month are forecast to post a decline, approaching an 11-year low and signaling no end to the housing recession that's threatening to stall growth next year, economists said ahead of the release of official figures.
Purchases are expected to fall to an annual pace of 717,000, according to the median forecast in a Bloomberg News survey of 68 economists, from 728,000 in October. The 716,000 units reached in September was the lowest since 1996.
The residential housing slump, already the deepest in 16 years, shows no sign of ending as discounts fail to lure buyers and mounting foreclosures swell the glut of unsold properties. Falling property values may cause consumer spending to cool, boosting the odds the expansion will come to an end.
"The housing recession continues to grind away," said Brian Bethune, US economist at Global Insight Inc in Lexington, Massachusetts. "Imbalances in the housing market overall are being exacerbated by a rising number of homes being reverted to the market due to foreclosures."
Economists' forecasts ranged from 685,000 to 750,000. The US Commerce Department report is scheduled for release at 10am in Washington.
The housing recession has deepened since the August turmoil in subprime mortgages led to a worldwide credit shortage. Stricter borrowing standards and a freeze on lending to borrowers with poor credit put mortgages out of reach for more potential buyers. That's driving home prices lower, weakening sales as people hold out for even bigger reductions.
2008 FORECAST
Sales of new houses are forecast to tumble 8.9 percent next year after a 25 percent drop this year, according to a Dec. 13 forecast from Fannie Mae, the largest mortgage buyer. Sales of new homes in October were already down 48 percent from their July 2005 peak.
Home prices in 20 metropolitan areas fell 6.1 percent in the 12 months to October, the most in at least six years, according to a report this week by S&P/Case-Shiller.
Lehman Brothers Holdings Inc forecast that prices would fall at least 15 percent from peak to trough. By that measure, the S&P/Case-Shiller index is down 6.6 percent so far.
With sales and prices falling, foreclosures rose 68 percent last month from a year earlier. They may continue surging next year as mortgages for some subprime borrowers with adjustable rates reset.
RECESSION ODDS
Housing starts are near a 14-year low and have fallen 48 percent since their peak in January last year. Declining home construction has subtracted from economic growth for the last seven quarters, and economists are expecting the drag to continue next year.
The slump in home construction is rippling across the economy, reducing demand for building materials, appliances and furniture, while weakening job growth as builders, mortgage companies and manufacturers reduce staff.
The weaker housing market is also forecast to undermine consumer spending, which makes up two-thirds of the economy, as falling property values leave owners feeling less wealthy and with less equity to tap for extra cash.
The odds of recession have increased since the credit markets froze as a result of the subprime crisis. The economy will expand at a 1 percent annual pace in the fourth quarter after growing at a 4.9 percent rate from July through September, according to the median forecast of economists surveyed this month by Bloomberg News.
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