Gloom Settles Over Housing Market

By Greg Robb, MarketWatch

RISMEDIA, May 22, 2007-The spring housing market is turning out to be something of a dud, dashing hopes of a turnaround.

The spring season typically sets the tone for the last half of the year. This year, that tone is pretty gloomy.

“The housing market is struggling to get back on its feet,” according to Sal Guatieri, economist at BMO Nesbitt Burns Inc.

“The spring-selling season is coming well below expectations,” agreed Mario Ricchio, a housing analysts with Zacks.com.

At the beginning of the year, there was hope that housing had turned the corner. But these expectations seem to have faded away. “We were seeing signs of recovery last year, but a lot of that reflected warmer than usual weather,” Guatieri said.

Economists say housing is bumping down near the bottom. “We think the housing market will remain weak right through this year. It probably won’t be until early next year that we see a stabilization and some recovery,” he added.

Many factors are at work. Buyers are hesitant to buy a home if they think prices are falling. Sellers have pulled homes off the market, waiting for prices to rebound.

“It is a buyers’ market and except for certain places, not too much of good property is available to be sold,” said Rajeev Dhawan, director of the Georgia State Economic Forecasting Center.

In addition, tightening lending standards are hurting home buyers. At the same time, speculators are fleeing the market, Ricchio pointed out.

New-home sales are expected to fall 0.1% to 857 million units in April. New-home sales fell 2.6% in the previous month and are down 23.5% compared with March 2006.

Existing-home sales are expected to only inch higher by 0.5% to 6.15 million units in April, after a sharp 8.4% decline in March — the biggest decline in 18 years.

Numbers on new-home sales will be released Thursday at 10 a.m. Eastern, while existing-home sales data will come out at 10 a.m. Friday.

The other main indicator of the week comes on Thursday, the durable-goods report.

Economists are looking for a 0.8% rise in orders in April after a 3.7% jump in March.

The strong increase in orders would be good news, as analysts feared that a slowdown in business spending, combined with the sluggish housing sector, could push the economy into recession.

“We think that is behind us now,” BMO Nesbitt Burns’ Guatieri said. “We’re encouraged by the recent positive numbers in capital goods orders.”

Greg Robb is a senior reporter for MarketWatch in Washington.

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