Realty rebound, gains by leading indices signal early revival

Realty rebound, gains by leading indices signal early revival
The Financial Express, July 20, 2009, Page 14

Bloomberg

Home resales in the US probably rose in June and a gauge of the economic outlook improved, signaling the recession may soon be over, economists said before reports this week.

Purchases of previously owned homes climbed to an annual rate of 4.83 million, the highest level since October, according to the median of 57 estimates in a Bloomberg survey before the National Association of Realtors' report on July 23. Figures on Monday may show the index of leading indicators climbed for a third consecutive month.

Mounting evidence that housing is stabilising is bolstering forecasts that government stimulus efforts will gain traction in coming months and lift the economy from the worst slump in five decades. Other reports may show rising joblessness is weighing on Americans' moods, tempering optimism about any rebound.

"The end of the recession could be pretty close," said Scott Brown, chief economist at Raymond James & Associates Inc in St Petersburg, Florida. "We're getting near the bottom in housing.

It'll still be a very gradual recovery for the economy, with a labour market that's very weak."

Reports last week corroborated that the housing slump, now in its fourth year, is dissipating. Housing starts unexpectedly jumped in June to the highest level since November as construction of single-family dwellings climbed by the most since 2004. Building permits, indicating future construction, rose the most in a year.

The National Association of Home Builders/Wells Fargo index of builder confidence increased this month to the highest level since September.

One reason for the projected increase in home resales is that prospective buyers are taking advantage of the plunge in prices caused by the foreclosure crisis. Filings reached a record in the first half of 2009, according to RealtyTrac Inc, an Irvine, California-based seller of default data. More than 1.5 million properties got a default or auction notice or were seized by banks in the six months through June.

The New York-based Conference Board's leading index, which points to the direction of the economy over the next three to six months, rose 0.5% last month after a 1.2% increase in May, according to the survey median.

The jump in building permits was probably one of the biggest contributors to the predicted gain in the leading index, economists said. Fewer jobless claims and higher stock prices were also likely drivers.

Stocks have gained on optimism an economic recovery is at hand. The Standard & Poor's 500 Index is up 39 percent since reaching a 12-year low on March 9.

A July 24 report may show the Reuters/University of Michigan final index of consumer sentiment fell in July after four consecutive gains, economists predicted. A preliminary reading dropped to the lowest level since March.

The US has lost about 6.5 million jobs since the recession began in December 2007. Economists in a separate survey taken by Bloomberg this month predicted the jobless rate will reach 10% by year-end from 9.5% in June.

Federal Reserve officials thought the economy was "still quite weak and vulnerable to further adverse shocks," according to minutes of their June meeting released last week. Even so, the report also said "the economic contraction was slowing and that the decline in activity could cease before long."

Companies seeing an improvement include CSX Corp., the third-largest US railroad. Jacksonville, Florida-based CSX reported second-quarter profit that topped analysts' forecasts, and said demand for hauling most freight is stabilising. Railroad traffic is considered an economic bellwether.

"We're seeing pretty good stabilization in our markets," CEO Michael Ward said in an interview last week. "We don't see any further deterioration, and we see some incremental improvement in the near future."