By Bob Willis
July 20 (Bloomberg) -- Home sales in the U.S. probably declined in June as the housing slump headed for a third year, undermining the economy and prompting businesses and consumers to trim spending, economists said before reports this week.
Combined sales of new and existing homes dropped 1.3 percent last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, probably fell 0.3 percent.
The biggest housing recession in a generation, now being exacerbated by a tightening in credit as financial losses spread, threatens to stall economic growth. The surge in raw-material costs and slowing demand will likely prompt companies to keep reducing investment in a bid to protect profits.
``Stress in financial markets and curtailment in lending are going to make it more difficult to buy homes,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``Manufacturers that produce for homebuilders or homeowners are being hurt by the slump in housing.''
The National Association of Realtors' report on sales of existing homes is due July 24. Purchases declined to a 4.93 million annual pace from 4.99 million in May, according to the survey median. Sales reached a 4.89 million pace in April, the fewest since comparable records began in 1999.
A day later, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 503,000 from 512,000 in May, according to survey estimates. Sales of existing and new homes are down 35 percent from their July 2005 peak.
Construction Drops
Reacting to the weak sales, builders in June began work on the fewest single-family homes since 1991, the Commerce Department reported last week. That signals that home construction will continue to weigh on the economy after subtracting from growth since the first quarter of 2006.
More Americans are walking away from their homes as property values tumble and borrowing costs on adjustable-rate mortgages reset higher. Bank seizures increased a record 171 percent from a year ago and foreclosure filings rose 53 percent in June, RealtyTrac Inc., a seller of default data, said July 10.
Stricter lending regulations and the drop in home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the first quarter grew at the slowest pace since the 2001 recession and is likely to keep slowing later this year, according to economists surveyed this month by Bloomberg.
Bernanke's View
Federal Reserve Chairman Ben S. Bernanke last week abandoned his June assessment that the threat of an economic downturn had diminished, telling lawmakers in semiannual testimony in Washington that there were ``significant downside risks to the outlook for growth.''
The index of leading economic indicators may have fallen in June for the first time in four months, economists forecast a report tomorrow will show. The Conference Board's gauge dropped 0.1 percent after increasing by the same amount in May, signaling growth is likely to slow over the next three to six months.
The report on durable goods, due from the Commerce Department on July 25, is also projected to show that orders excluding transportation equipment fell 0.2 percent in June, according to the Bloomberg survey.
Carmakers in particular have been battered. Sales of cars and light trucks fell to an annual pace of 13.6 million units in June, the lowest since 1993, according to industry figures.
General Motors Corp., buffeted by three years of losses, will hasten reductions in truck production and planned closings of four truck plants, Chief Operating Officer Fritz Henderson said on July 15.
``Lack of demand warrants'' accelerating the cutbacks, he said in a press conference in Detroit. ``The market is even softer'' than GM projected in June, when the reductions were first announced. ``We need to act now.''
Also on July 25, the University of Michigan/Reuters final survey of consumer sentiment for July may show confidence dropped to a 28-year low.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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LEI MOM% 7/21 June 0.1% -0.1%
Initial Claims ,000's 7/24 20-Jul 366 380
Cont. Claims ,000's 7/24 13-Jul 3122 3190
Exist Homes Mlns 7/24 June 4.99 4.93
Exist Homes MOM% 7/24 May 2.0% -1.2%
Durables Orders MOM% 7/25 June 0.0% -0.3%
Durables Ex-Trans MOM% 7/25 June -0.8% -0.2%
U of Mich Conf. Index 7/25 July F 56.6 56.3
New Home Sales ,000's 7/25 June 512 503
New Home Sales MOM% 7/25 June -2.5% -1.8%
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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