Seeking Signs of a Recovery for Housing

As posted by: Wall Street Journal

Just when it seemed nearer, the housing recovery has darted away again.

On Tuesday the National Association of Realtors reports November home resales and the Commerce Department reports November new-home sales. Economists expect both measures fell during a month when economic activity generally came to a screeching halt.

Home resales, the bulk of the market, had seemed to stabilize this fall. But that was largely because of brisk foreclosure sales in stressed markets. And this thin silver lining has dimmed: Pending home sales, a leading resale indicator, have fallen for two months in a row after rising to their 2008 peak this summer.

A nagging oversupply of houses and record-low home-builder confidence suggest new-home sales won't perk up soon, either. There are hopeful signs for housing, critical to the health of the broader economy. Years of falling prices have made houses intriguingly affordable, especially relative to rising rents.

And mortgage rates have tumbled to their lowest levels in nearly 40 years. Barclays Capital economists estimate that, since 1975, one percentage point of falling borrowing costs has added 15% to home sales and 1.5% to home prices.

They warn, however, that those results depended on financial markets functioning "more or less normally." Not so now. With credit still tight, unemployment rising and household balance sheets still debt-heavy, lower rates have so far mainly produced more refinancings, not sales. Slashing rates to 4.5% for new borrowers, as the government aims to do, won't be a panacea, either. Ivy Zelman, chief executive of housing-research firm Zelman & Associates, estimates that, even with such a low rate, only about 67% of U.S. households can afford a house. Homeownership was nearly 68% in the third quarter, according to the Census Bureau, implying there is virtually no untapped demand for homes.

Don't expect much cheer in the card American Greetings is sending to investors this holiday season.

The greeting-cards firm reports third-quarter results Tuesday, and if the past two quarters are any indication, the numbers could be as bleak as today's national psyche. In the first two quarters of the current fiscal year, the firm missed analysts' estimates by more than 50%.

Only two analysts have published estimates for the third quarter, and they expect American Greetings will earn, on average, 52 cents a share -- though the range is exceedingly wide at 44 cents to 60 cents. A year ago, American Greetings earned 53 cents a share. Just where the numbers land will depend partly on cost-savings initiatives the company announced earlier this month.

Analysts have trimmed revenue and earnings forecasts through fiscal 2010. Moreover, in recent reports both Stein Research and Gabelli & Co. expressed concern dysfunctional credit markets might have mucked up the company's $195 million sale of its Care Bears and Strawberry Shortcake properties, which was supposed to close in September but still hasn't. Analysts will seek guidance on that as well.