17 May 2010

New Home Construction in U.S. Probably Rose as Tax Credit Boosted Sales


Home construction probably picked up in April, the growth outlook improved and the cost of living was little changed, showing the U.S. economy is expanding without stoking inflation, economists said before reports this week.

Work began on 650,000 houses at an annual pace last month, the most since November 2008, according to the median forecast of 62 economists surveyed by Bloomberg News before Commerce Department figures on May 18. Other reports may show the index of leading indicators climbed for a 13th straight month, while consumer prices rose 0.1 percent.

A government tax credit worth as much as $8,000 helped sales of new houses surge in March by the most in five decades, which may lead to a rebound in construction in coming months after builders trimmed inventories. Minutes of the Federal Reserve’s April meeting, also due this week, may shed more light on policy makers’ assessment of the economy.

The tax incentive “gave a boost to developers too,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “The economy is growing at a modest pace, and in the short run, there’s no reason to worry about inflation.”

The Conference Board’s measure of the economy’s outlook for the next three to six months climbed 0.2 percent last month, according to the survey median. The figures, due on May 20, would follow a 1.4 percent gain in March that was the most since a similar rise in May 2009.

The Commerce Department’s housing report may show building permits, a sign of future construction, grew at a 680,000 rate, matching the pace of the prior month that was the highest since October 2008.

Tax Credit

The tax incentive for first-time homebuyers, which was extended in November to include some current owners, required contracts be signed by April 30 and settled by June 30. Sales of new homes surged in March by the most since 1963, and purchases of existing homes rose for the first time in four months as the deadline approached.

The jump in sales in March brought the number of new houses on the market down to 228,000, the fewest since March 1971, one reason builders may keep taking on projects even as they compete with foreclosed homes coming back on the market.

The rebound in demand also lifted builder confidence this month to the highest level since April 2008, a report may show tomorrow. The National Association of Home Builders/Wells Fargo’s index rose to 20 from 19 in April, according to the Bloomberg survey median. Even so, readings below 50 mean a majority of respondents said conditions remained poor.

Foreclosure Filings

Home repossessions rose to a record level in April while foreclosure filings dropped in a sign mortgage lenders are working off a backlog of seized properties, according to RealtyTrac Inc. data released last week.

A sustained recovery in housing and the economy will depend on faster job creation. Employment increased in April by the most in four years, and the economy has added jobs for four consecutive months. At the same time, economists project the unemployment rate will end the year above 9 percent, according to a Bloomberg survey taken this month.

Pulte Group Inc., the largest U.S. homebuilder by revenue, is among companies waiting for signs the improvement in housing will last beyond the end of the government assistance. Bloomfield Hills, Michigan-based Pulte said its first-quarter net loss narrowed from a year earlier. The number of houses it sold fell even as it combined operations with rival Centex Corp.

Bottom, Not Recovery

“The U.S. housing industry is finding, and may have already found, a bottom, but that’s different from saying that a recovery is at hand,” Richard J. Dugas, Pulte’s chairman and chief executive officer, said on a conference call with analysts on May 5. “Any meaningful sustained improvement will require employment gains, and in turn, better consumer confidence.”

The Standard & Poor’s Homebuilder Supercomposite Index has climbed 14 percent this year, compared with a 1.9 percent gain in the broader S&P 500.

Price pressures are limited, a pair of reports from the Labor Department may show. The producer price index, due on May 18, rose 0.1 percent in April from the prior month, according to the Bloomberg survey median.

Consumer costs are also forecast to rise 0.1 percent, the same as in March, economists projected. Excluding food and fuel, the so-called core rate probably also rose 0.1 percent.

“Inflation is likely to be subdued for some time,” Fed policy makers said in a statement after their April 28 meeting, when they signaled the main interest rate will remain near zero for an “extended period.” Minutes of that gathering will be released on May 19.

Regional Fed reports may show manufacturing kept driving the economy’s recovery from the worst recession since the 1930s. The Fed Bank of Philadelphia’s general economic index, due on May 21, rose in May for the fourth straight month, while the Fed Bank of New York’s gauge expanded for the 10th month, economists projected.

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