The second full week of third quarter earnings is sharing headline space this week with the housing sector, as a handful of released reports are causing renewed concerns on the damaged industry. Wall Street analysts and government officials are busy examining four major indicators that are sending chills down the spines of homeowners and builders.
With three of four reports released so far, none has provided evidence the housing recovery is in full operating mode. The National Homebuilders Index, Housing Starts and Housing Permits have all signaled a possible retraction for the sector – even with the government’s sponsored $8,000 tax credit for first-time buyers.
Analysts had predicted the National Homebuilders Index to rise in October, from a reading of 19 in September. However, the report showed a print of 18; the first drop since February. To add to the negativity, any reading below 50 is a sign that homebuilders feel the housing sector is “poor and weak.”
The explanation for the drop provided by media pundits is the pending expiration of the tax credit. Needless to say, any type of government intervention to extend the credit will be seen as a positive for homebuilders. As Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla., said in a press release obtained by TheDeal.com:
Congressional action to expand the tax credit and extend it for one year would provide a critically needed boost to the employment market and economy, generating nearly 350,000 jobs, $28.2 billion in wages, salaries and business income and $11.6 billion in additional tax revenues. That’s an opportunity we can’t afford to pass up at this difficult time.
Although there is pressure from the builders, as well as would-be homebuyers, the Obama administration is not expected to render a decision on extending the credit for at least a few weeks.
MarketWatch writes, “‘We understand the urgency of this situation,’ Housing and Urban Development Secretary Shaun Donovan said at a Senate Banking Committee hearing, according to Congressional Quarterly. ‘And we believe that within the next few weeks, we will have additional data that will allow us to sit down with [the committee] and discuss whether and how to extend the credit,’ according to CQ.”
Yesterday’s hearing with the Senate Banking Committee came soon after the Commerce Department released the September data on housing starts and permits. Both reports disappointed to the downside as September housing starts increased a benign 0.5% to 590,000 units; analyst expectations were calling for a 610,000 print. In addition, building permits dropped 1.2% in September to 573,000 units. Consensus had forecasted a rise to 595,000 units.
The fourth and final economic indicator to be released on the embattled sector is Existing Home Sales. The Commerce Department will release its monthly report on Friday morning, but any sense of optimism has quickly evaporated following the three negative reports released so far. One thing most analysts and economists can attest to is the extension of the tax credit will provide much-needed comfort to the sector.
The housing data was “striking fear that the looming expiration of the first-time homebuyer credit spells doom for the nascent recovery in that sector,” Charles Schwab analysts said to The Economic Times.
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