A slowing U.S. housing market may not indicate that the broader national economy is sickly.
Despite months of glum news about slow housing sales and faltering new construction, many economists have not drastically altered analysts expectations of slower but steady economic growth ahead.
The housing sector is on everybody's mind, said Oscar Gonzalez, an economist with John Hancock Financial Services, but weakness there is not likely to throw the economy into a tailspin.
Gonzalez said a softening housing sector should trim 1.0 percentage point off the annualized pace of U.S. economic growth in the third quarter this year.
The U.S. housing sector that burned brightly for five years flamed out in August 2005 when some regions that saw double-digit percentage gains in home prices started to see prices fall.
Now the nation's housing inventory of unsold homes is at an all-time high and the U.S. median house price fell for the first time since 1995, according to data from the National Association of Realtors this week.
Ethan Harris, chief U.S. economist for Lehman Brothers in New York, said he expected the sector to bottom out early next year, in which case the economy should be able to shrug off the shock.
In the meantime, we'll have a pretty gloomy feeling around the (housing) market, he said.
A number of recent reports on housing have helped ease concerns that a cooldown could imperil the broader economy, even though economists remain divided on how much lower temperatures will drop for the sector.
SECTOR BEATS EXPECTATIONS
Data this week showed the pace of both new and existing home sales in August beat analysts' dreary predictions.
The volume of existing home sales fell 0.5 percent to a 6.3 million unit annual rate, according to data released by the National Association of Realtors on Monday.
While that marked the fifth straight monthly drop, it was the shallowest decline over that period and not as deep as economists had expected.
Separately, the U.S. Commerce Department said on Wednesday the pace of new home sales rose 4.1 percent to a 1.05 million unit rate, defying predictions for a drop.
Analysts noted that sales for the prior three months had been revised lower, but said the data nonetheless suggested housing may be nearing a trough.
We got some good news this mornings since people were generally expecting further weakening, Gonzalez said.
WEANED FROM HOUSING
The U.S. economy is thankfully less reliant on the housing sector than it was four years ago, when few of the economy's pistons were firing with much strength.
Frank Nothaft, chief economist for mortgage finance giant Freddie Mac said that if the current housing slowdown had unfolded then it would have been worse.
Nothaft expects U.S. gross domestic product to expand no more quickly than a 3.0 percent annual rate over the second half of the year, 1.0 percentage point lower than would have been the case if the housing sector were stronger and a slowdown from the first half's more than 4.0 percent rate.
Lehman's Harris noted that home construction accounts for only 6.0 percent of U.S. GDP and said it should easily be able to withstand the shock to housing.
It is very unlikely that the housing market could cause a recession, he said.
While the broader economy may weather the housing downturn, some homebuilders are seeing their earnings hurt.
On Tuesday, Lennar Corp. reported a 39 percent drop in quarterly profits for the third quarter and blamed it on the housing market downturn.
Lennar has joined several U.S. home builders, including Beazer Homes USA Inc., KB Home, Hovnanian Enterprises Inc. and Toll Brothers that have either posted lower quarterly earnings or cut their forecasts.
(Additional reporting by Ilaina Jonas)