October Home Sales Report Expected To Be Negative

A new report from the National Association of Realtors is expected to show that existing home sales declined slightly in October 2010. A decline in mortgage loan applications …

A new report from the National Association of Realtors is expected to show that existing home sales declined slightly in October 2010. A decline in mortgage loan applications and pending sales are expected to be the chief factors affecting the October 2010 existing home sales results. See the following article from The Street for more on this.

Existing-home sales are expected to have fallen slightly in October. The National Association of Realtors’ report is due out Tuesday morning.

Fewer people applying for mortgage applications in the month and a decline in the index of pending home sales point to the possibility for disappointment in Tuesday’s data, according to Doug Roberts, chief investment strategist at Channel Capital Research and author of Follow the Fed to Investment Success.

Roberts told TheStreet that sales of previously occupied homes likely fell a bit last month, based on leading indicators of soft demand for home loans and a drop in pending home sales.

Still, mortgage rates remain near all-time lows which could have prompted potential homebuyers to go ahead with their purchases. That means a surprise to the upside is also a possibility, Roberts said.

The consensus call is for existing-home sales to have fallen to a seasonally adjusted annualized rate of 4.42 million in October, down from 4.53 million units in September.

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Existing-home sales rebounded a better-than-expected 10% in September, well off July’s 15-year low rate of 3.84 million existing-homes sold.

Current market conditions indicate Tuesday’s existing-homes sales data will come in slightly less-than-expected, Roberts said, primarily because of the “foreclosure mess and the seasonal influence of people who don’t like to move during the school year.”

Roberts did point out that differentials do exist in southern U.S. climates — older retirees looking to move and among homebuilder companies trying to get rid of excess inventory — but that those factors will have more of an effect on new-homes sales.

Sales of newly built homes are expected to have ticked up to a seasonally adjusted annual rate of 312,000 in October, up from a rate of 307,000 in September. The Commerce Department report is due out Wednesday morning.

A variety of factors have kept potential buyers from making home purchases in recent months. High unemployment, a lack of credit and the expiration of federal tax credits for homebuyers are obvious reasons. The recent foreclosure scandal also plays its part.

Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry has expanded into a nationwide political firing line aimed — once again — toward the banks due to problems with foreclosure filings, dubbed “robo-signing.”

“People are talking about settlements but we haven’t seen anything yet,” said Roberts. “We’re all waiting with baited breath for a solution.”

In the meantime a shadow market of housing inventory looms just below the surface. Roberts said many homeowners who would like to sell their homes, but don’t think a sale is likely under current conditions, are waiting on the sidelines for the housing market to pick up before putting their homes on the market.

That means the inventory of available homes is likely to stay elevated even if the pace of sales picks up, he said.

For homebuilders, it means offering potential buyers extra perks like financing interest-free loans for the first few years, and state-of-the-art kitchens — ways in which the group can spur sales while maintaining operating margins.

Stocks in the homebuilder sector were mostly lower Monday morning as global markets weighed news that Ireland formally requested a bailout package from the European Union and the International Monetary Fund.

The SPDR S&P Homebuilders(XHB_), an exchange-traded fund that tracks the homebuilder sector, fell 0.8% while the iShares Dow Jones US Home Construction(ITB_) lost 1%.

Among individual builders, PulteGroup(PHM_) traded 1.3% lower, D.R. Horton(DHI_) 1%, Lennar(LEN_) 2.7% and Beazer Homes(BZH_) 1.2%.

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