Home sales may bring the roof down on US recovery

NEW YORK/WASHINGTON: Housing led the US out of seven of the last eight recessions. This time, it may kill the recovery. Home sales collapsed after a federal tax credit for buyers expired in April.

Since then, the manufacturing-led expansion, which began in the second half of 2009, has been waning, with jobless claims rising and factory orders falling.

“If foreclosures continue to mount and depress home prices, that could send the economy back into a recession,” said Celia Chen, an economist who tracks the industry for Moody’s Analytics. “The housing market and the broader economy are closely intertwined.”

Spending on home construction and items such as furniture and stoves accounted for about 15% of GDP in the second quarter, according to West Chester, Pennsylvania-based Moody’s Analytics. Real estate also can influence consumer spending indirectly. When values soared in the mid-2000s, people used the boost in equity to pay for cars and vacations. After prices fell, homeowners lost that cushion and curbed spending.

A report by the Chicago-based National Association of Realtors will show July sales of existing homes plummeted 12.9% from June, the biggest monthly loss of 2010, according to the median estimate of economists surveyed.

New-home sales, which account for less than a 10th of housing transactions, stayed at the second-lowest level on record last month, economists predict Commerce Department data will show on August 25.

With 14.6 million Americans out of work, homeowners are struggling to hold onto their properties. One in seven mortgages were delinquent or in foreclosure during the first quarter, the highest in records dating to 1979, according to the Washington-based Mortgage Bankers Association. Foreclosures probably will top 1 million this year, said RealtyTrac, an Irvine, California-based data company.

Federal efforts to help have had little success. Of 1.31 million loan modifications started under the Obama administration’s Home Affordable Modification Program, 48% were cancelled by the end of July, the Treasury Department said August 20.

More than half of all modifications defaulted again within 12 months, the Office of the Comptroller of the Currency said June 23.