Housing Slump

by Larry Levin


This week's data kicks off with more news on housing prices and if the trend continues, it won't be especially bullish. Bloomberg had a good article on housing this weekend that you may find interesting. The whole article can be found here:

http://www.bloomberg.com/news/2010-07-18/housing-leading-index-in-u-s-probably-slumped-in-sign-recovery-slowing.html

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.”

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.



Previous Day's Trading Room Results:

Trade Date: 7/16/10

E-Mini S&P Trades*
(before fees and commissions):


1) VA buy @ 8:49am at 1080.00 = +1.00 & +1.00 (2 lots)

2) Algorithm positions (10)

3) “Reading the Tape” positions (16) combined Secret’s, Algo, & “Reading the Tape” total… +6.75



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