A slowdown in the nation’s overheated housing market has some analysts predicting home construction is dropping into a bottomless chasm. But things may not be so bleak.
For one thing, the stocks of home-building firms are enjoying a bull run on Wall Street of more than 20 percent since midsummer. Part of the reason: anecdotal reports that a few more buyers are motoring to sales centers at outlying subdivisions.
A fresh reading on the industry occurs Wednesday, with housing starts for September. In August, the level of construction plummeted by 6 percent, a worse showing than analysts were expecting, to an annual rate of 1.665 million units. Watch for a very modest rebound.
Recently, sales of new homes have been running 22 percent below the levels of last autumn, said Mario Ricchio, senior home-building analyst for Zacks Investment Research. “In essence, it took only 10 months to slice new-home demand by more than a fifth.” However, during the same period, prices of houses remained nearly flat.
Ricchio’s bottom line: “Since nationwide home prices are holding up relatively well, with builder incentives acting as a support, the housing market appears headed for a soft landing.”
Other news to watch:
– The best holiday shopping news for retailers comes at the gas pump, where consumers face fuel costs as much as 70 cents below where they stood at midsummer, said Chicago economist Diane Swonk. She believes that oil soon should be selling for $40 to $50 a barrel, far below the $78.40 it commanded in mid-July. “The result should be welcome news for consumers and retailers as we enter the critical holiday shopping season,” said Swonk, of Mesirow Financial. “The payoffs will be uneven, however, with wealthy households reacting much faster to the decline in oil prices than middle-income households, who must first unburden themselves of the debts incurred when oil prices were higher.”
– It’s bottom-line time for the stock market, as third-quarter corporate profits begin rolling out in earnest. Profit growth has continued at double-digit rates for 17 quarters in a row, recently running at 12 percent to 14 percent, said Chicago investment manager Marshall Front. However, forecasts for the next 12 months are too high, said Front, of Front Barnett Associates. Thanks to rising wages, slower productivity growth, weaker housing and ho-hum levels of consumer spending, profits will be crimped, “leading to a gradual deceleration of profit growth to a range of 6 to 8 percent in 2007,” he said.
–William Sluis, [email protected]