Home sales will have dropped to a two-year low in July, putting housing at the epicenter of the emerging U.S. growth slowdown, economists project a pair of reports to show this week.
Sales of new and previously owned homes probably fell 1.2 percent during the month, to an annual rate of 7.66 million, the fewest since February 2004. Orders to factories for durable goods, such as furniture and autos, also dropped. Rising mortgage rates and still-high prices have made buying a home the least affordable in almost two decades.
Fewer sales and less construction may make it possible for Federal Reserve officials to keep holding interest rates steady after ending a two-year run of rate increases earlier this month.
Housing “is in full-fledged retreat, threatening the broader economy,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns in Toronto. “The weakness we are seeing in housing is one of the principal factors why the Fed paused and is one reason why they are likely to remain on hold.”
Sales of new homes fell to an annual rate of 1.1 million in July from 1.131 million a month earlier, economists expect a Commerce Department report on Thursday to show. Purchases of existing homes, to be reported by the National Association of Realtors on Wednesday, likely dropped to a 6.55 million pace from 6.62 million in June. Previously owned homes account for about 85 percent of the market and new houses the rest.
The inventory of unsold existing homes in June was the highest since 1997. The number of unsold new homes rose to a record 566,000.
Home construction is slowing along with sales. Builders broke ground in July on the fewest homes in almost two years, the Commerce Department reported last week. Homebuyer affordability declined in June to the lowest level since record-keeping began in 1989, according to the National Association of Realtors, as median prices kept rising and mortgage rates increased.
Borrowing costs last week dropped after lower-than-expected inflation figures raised expectations that the Fed will now keep interest rates steady through the end of the year. The lower borrowing costs may help limit the damage to the housing market.
“We see a soft landing in housing,” Gregory Hahn, chief investment officer at Oppenheimer & Co. in Carmel, Ind., said in an Aug. 10 interview. “We see a pretty orderly decline in the market.”
Other news to watch:
– Volatile orders for new aircraft probably led to a drop in bookings for durable goods in July, predict economists anticipating Thursday’s report from the Commerce Department.
Total July orders probably fell 0.5 percent after jumping 2.9 percent in June, when aircraft demand jumped. Orders excluding transportation equipment probably rose 0.3 percent, a third consecutive increase, after a 1.1 percent June gain, according to the forecast median.
– Finally this week, the Labor Department is expected to report on Thursday that the number of first-time applications for unemployment benefits probably rose to 315,000 in the week that ended Saturday from 312,000 the prior week.
