By Shobhana Chandra
Aug. 27 (Bloomberg) -- U.S. sales of previously owned homes probably fell in July for a fifth consecutive month, showing the housing slump that triggered a collapse in credit markets will drag on, economists said before a report today.
The National Association of Realtors may report home resales declined 0.9 percent to an annual rate of 5.7 million, the slowest pace since October 2002, according to the median forecast of 70 economists in a Bloomberg News survey.
With no recovery in sight for residential real estate, lower property values and harder-to-get mortgages threaten to weaken consumer spending, economists said. The Federal Reserve this month acknowledged a growing risk to economic growth in the wake of subprime defaults and a plunge in stock prices.
``The long unwind in the housing sector will continue well into next year,'' said Joseph Brusuelas, chief U.S. economist at IDEAglobal in New York. ``The inventory of new and existing housing is far too large. The subprime crisis has eliminated the marginal buyers from the market.''
The Realtors group will release existing home sales figures at 10 a.m. in Washington. Estimates of the annual sales rate ranged from 5.5 million to 6 million in the Bloomberg survey.
New Home Sales
New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department reported Aug. 24. Purchases may show renewed weakness as turmoil in credit markets pushes some mortgage lenders out of business and prompts others to restrict lending, economists said.
Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new home purchases are recorded when a contract is signed, making them a more timely barometer. Resales account for about 85 percent of the U.S. housing market.
The Fed cut the rate charged on direct loans to banks Aug. 17 to try to increase the availability of capital after global stock markets plunged on concern that the subprime default crisis will spread and destabilize the financial system.
``The downside risks to growth have increased appreciably,'' policy makers said in a statement that day, reversing their stance Aug. 7 that inflation was the greatest risk.
Delinquencies on loans to subprime borrowers -- or people with poor-credit histories -- hit a five-year high in the first quarter, and builders started work on the fewest homes in a decade in July, recent reports show.
Lending Standards
Tighter rules for loans ``could further dampen residential investment,'' Fed Bank of Richmond President Jeffrey Lacker said Aug. 21 in a speech in Charlotte. ``Recent data on actual housing market activity have dampened my optimism'' about a bottoming-out in the industry, he said.
Lacker also predicted ``the drag from housing will continue for some time.''
Economists agree the glut of unsold properties is unlikely to ease anytime soon, and will put pressure on prices to fall further. Prospective homebuyers are waiting for better bargains, while subprime defaults and rising foreclosures raise the risk that more houses will get thrown back on the market.
Toll Brothers Inc., the largest U.S. luxury homebuilder, said third-quarter profit fell 85 percent as the deepening housing slump cut sales, increased cancellations and forced the company to write down property.
``We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets,'' Chief Executive Officer Robert Toll said on a conference call Aug. 22. ``Traffic is pretty stinky out there.''
In wider repercussions, some companies are facing limited access to credit. Countrywide Financial Corp., the largest U.S. mortgage lender, had to tap a credit line from its banks after being shut out of the commercial-paper market. Bank of America Corp. last week agreed to invest $2 billion in the company.
