AP

Ahead of the Bell: New Home Sales

Home prices have dropped more during this recession than they did during the Great Depression in the 1920s and 30s. And it took 19 years for prices to fully recover during the depression.
WASHINGTON -- Fewer people bought new homes last month, economists expect, in what would be the latest sign that the depressed housing market won't rebound this year.

Economists estimate sales fell last month to a seasonally adjusted annual rate of 310,000 homes, according survey by FactSet. The pace would be 4 percent lower than in April and far below the 700,000 homes a year that economists view as healthy.

The Commerce Department will release the report at 10 a.m. Eastern on Thursday.

Housing remains the weakest part of the U.S. economy, analysts say. Sales of new homes have fallen 18 percent in the two years since the recession ended. Last year was the worst for new-home sales on records dating back half a century.

Though new homes represent only about 20 percent of the overall home market, they have an outsize impact on the economy. Each new home creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.

Larger down payment requirements, tougher lending standards and high unemployment are preventing people from buying homes. Many people who can afford to buy are holding off, worried that prices have yet to bottom out.

People have little reason to buy new homes, in part because they are so expensive compared to previously occupied homes. New-home prices are more than 30 percent higher than the median price of re-sales, twice the normal markup.

One reason for the difference in price is the flood of foreclosures and short sales - when lenders let homeowners sell for less than they owe on their mortgage. They are selling at an average discount of 20 percent and ultimately pull down broader home prices.

Federal Reserve Chairman Ben Bernanke said Wednesday that the housing market was a strong and persistent factor hurting the broader economy. For the market to recover, he said foreclosures must be cleared from the pipeline of homes for sale.

Bernanke said he would prefer that banks help homeowners facing foreclosure by lowering their monthly payments through modified loans. But he also said if those modifications were not appropriate, it was important to speed up foreclosures to "give people confidence that they can buy and not be buying into a falling market."

Roughly 1.2 million homes will be foreclosed upon this year, according to foreclosure tracker RealtyTrac Inc., and an additional 1.7 million homes represent the nation's "shadow inventory" of homes that are at risk of foreclosure, according to real estate data firm CoreLogic.

The number of new homes on the market is at its lowest point since record-keeping began in the 1965. But analysts say the supply of new homes for sale is being kept artificially low because of weak demand.

Last year was the fifth straight year that new-home sales fell. That followed record-high sales in the previous five years, when the housing market was booming. Economists say it will take years before sales return to pre-housing boom levels.

A telling sign of how far things have fallen: Home prices have dropped more during this recession than they did during the Great Depression in the 1920s and 30s. And it took 19 years for prices to fully recover during the depression.

http://www.forbes.com/feeds/ap/2011/06/ ... 30677.html