Housing gives signs of emerging from crisis

7/24/2009

WASHINGTON - The housing market may be finally emerging from the three-year crisis that pushed the nation into the longest recession since the Great Depression.

For the first time in five years, sales of previously occupied homes rose for the third consecutive month in June, while foreclosure sales and the glut of homes on the market both declined.

The figures, released yesterday by the National Association of Realtors, and a string of rosy corporate earnings reports sparked a rally on Wall Street as the Dow Jones industrials rose above 9,000 for the first time since January.

That means in a little more than four months, the Dow has leapt more than 2,500 points - almost 39 percent.

"People believe that the worst is behind us," said Julie Longtin, a real estate agent with Re/Max Professionals in Providence, R.I., an area that has suffered deeply from record foreclosures of risky loans.

Sales also have risen for three straight months in 40 out of 55 major metropolitan areas tracked by the Associated Press-Re/Max Housing Report, also released yesterday. Prices rose during that period in about half of those areas.

Still, unlike past recessions, the turnaround in the real estate sector is likely to have a muted effect overall. That's largely because homebuilders are expected to keep bulldozers idle as long as they face competition from bargain-priced foreclosures. And it's likely to take at least another year before job losses and foreclosures peak.

The Labor Department said yesterday the number of newly laid-off workers seeking jobless benefits rose 30,000 to a seasonally adjusted 554,000 last week, though the government said its report again was distorted by the timing of auto plant shutdowns.

Unemployment insurance claims have declined steadily since the spring, but most private economists and the Federal Reserve expect jobs to remain scarce and the unemployment rate to top 10 percent by year-end.

"We're not going to see much growth in [home] sales until the labor market turns around," said Patrick Newport, an economist with IHS Global Insight. "People don't move as much when they can't find work."

But companies should start hiring as their fortunes improve - and there were some early signs yesterday that's starting to happen.

Ford Motor Co. surprised investors with a profit of $2.3 billion, mainly because of a huge gain for debt reduction, while manufacturing conglomerate 3M Co. and candy maker Hershey Co. raised their profit forecasts for the year.

The Dow Jones industrial average, the stock market's best-known indicator, shot up almost 190 points yesterday to 9,069.29, its highest level since November, and all the big indexes gained more than 2 percent.

But Wall Street remains wary. Many of the cheery earnings reports, analysts contend, mask fundamental weaknesses. At Ford, International Business Machines, Starbucks, and others, the latest results were driven not by a rise in sales, but by a decline in costs - in other words, by aggressive penny-pinching and, in some cases, big layoffs.

And no sooner did the Dow close above 9,000 yesterday than two of its 30 members - Microsoft and American Express - reported disappointing results, and stock futures promptly fell.

"You've got to be kind of skeptical about it," Howard Silverblatt, a senior index analyst at Standard and Poor's, said of the apparent rebound. "What we've seen is just nice presentations and spreadsheets."

According to the S&P's data, Mr. Silverblatt said, sales at major corporations fell 7.1 percent during the second quarter from the comparable period a year earlier. That is actually a bit of good news, since sales plunged 16 percent during the first quarter. But Mr. Silverblatt said many businesses will be in trouble if they cannot increase sales by the fourth quarter.

"There's only so much you can cut," he said.

Home sales rose

3.6 percent to a seasonally adjusted annual rate of

4.89 million last month, from a downwardly revised pace of 4.72 million in May. Sales are now around the same level as before last fall's financial crisis.

Foreclosures, however, continue to put pressure on home prices. About one of three homes sold in June was foreclosure-related, down from almost half earlier this year.

And despite some buyers' optimism, some still see potential problems ahead. A tax credit of up to $8,000 for first-time homebuyers expires Nov. 30. Mortgage rates are up from record lows reached last spring, and companies still are shedding jobs.

The nationwide median sales price was $181,800 in June, down 15 percent from year-ago levels but up slightly from $174,700 in May.