U.S. Existing-Home Sales Probably Rose for a Second Month

May 19, 2011, 12:22 AM EDT By Bob Willis

May 19 (Bloomberg) -- Sales of previously owned U.S. homes probably rose for a second month in April as investors used cash to buy distressed properties, a reminder real-estate is struggling to gain traction almost two years into the recovery, economists said before a report today.

Purchases of existing houses rose 2 percent to a 5.2 million annual pace, according to the median forecast of 75 economists surveyed by Bloomberg News. Other reports may show fewer Americans applied for unemployment benefits last week and manufacturing expanded in the Philadelphia region.

The increase in home demand is helping clear the market of inventory even as renewed foreclosures will probably continue weighing on prices. Manufacturing has so far carried the economy, validating the Federal Reserve’s decision to maintain record stimulus until the recovery becomes self-sustaining.

“We are seeing a pickup in all-cash transactions,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. “All-cash bargaining power and investment activity is helping absorb the supply. We will continue to see a gradual pickup in demand.”

The National Association of Realtors will release the figures at 10 a.m. in Washington. Estimates for home sales in the Bloomberg survey ranged from 5.09 million to 5.40 million. Purchases reached a record 7.08 million in 2005, and slumped to a 13-year low of 4.91 million last year.

Homebuilders are seeing no gain in demand as they are forced to compete with foreclosed properties. Builders began work on 523,000 houses at an annual rate in April, down 11 percent from the prior month, the Commerce Department reported this week. Housing starts dropped to a record low of 478,000 in April 2009.

Reduced Optimism

Confidence among homebuilders remains at recession levels. The National Association of Home Builders/Wells Fargo sentiment index held at 16 in May as a measure of sales expectations for the next six months fell to an eight-month low, the group said this week.

Douglas Yearley Jr., chief executive officer at Toll Brothers Inc., the largest U.S. luxury-home builder, last week said the spring home-selling season has been “disappointing” and that “people are still scared.”

Demand for new houses will remain weak into 2012, said Bill Wheat, chief financial officer of D.R. Horton Inc., who last week also projected a housing recovery will take time to develop.

“We don’t see the economic drivers to change in 2011,” said Wheat, whose Fort Worth, Texas-based company is the second- largest homebuilder by revenue. “We feel it could still be a struggle in 2012.”

Fed Minutes

The Fed, in minutes of its April 26-27 policy meeting released yesterday, said the housing market “remained very weak as the large overhang of foreclosed and distressed properties continued to restrain new construction.”

The manufacturing industries that make up 12 percent of the economy continue to spearhead the recovery that began in June 2009, led by business spending on new equipment and demand from emerging economies like China, Brazil and Mexico. American exports in March rose to the highest level on record.

The Federal Reserve Bank of Philadelphia’s factory index may have climbed to 20 this month from 18.5 in April, according to the median estimate of economists surveyed before the 10 a.m. release.

Caterpillar Inc. last month posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in developing countries. The Peoria, Illinois-based maker of earthmoving equipment said its outlook would have been higher had it not been for the March 11 earthquake in Japan.

Factory Shares

Industrial companies have outperformed homebuilders this year. The Standard & Poor’s Supercomposite Machinery Index has gained 5.9 percent since Dec. 31, compared with a 1.3 percent decline for the S&P Supercomposite Homebuilding Index.

Another report today may signal the economic recovery is cooling. The Conference Board’s index of leading indicators rose 0.1 percent in April, compared with a 0.4 percent gain the prior month, economists forecast the 10 a.m. report will show. The projected increase in the gauge, which is designed to signal the economy’s path over the next three to six months, would be the smallest since August.

A jump in claims for unemployment insurance benefits last month is one reason the leading index moderated. A Labor Department report at 8:30 a.m. may show that increase through April is now reversing.

The number of applications for jobless benefits fell to 420,000 last week from 434,000 the prior week, according to the survey median. Claims would still exceed the 375,000 reached in February, a two-year low.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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