The tax savings could be substantial under the revised plan.Sean Kilpatrick
House prices in the U.S. have stabilized, but look for a setback on Thursday as pressure wanes from a last-minute rush of home buyers seeking to take advantage of the federal government's tax credit.
For long-term investors, house prices are the key for a recovery in vast swaths of the U.S. economy, including the employment picture, building materials, household products and the financial health of the banks.
And in Canada a U.S. housing recovery will help the beleaguered forest products industry.
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WHAT ARE THE EXPECTATIONS?
The U.S. house price index, which is scheduled for release Thursday, is forecast to have declined by 0.3 per cent in May, according to a survey of economists by Bloomberg. It rose 0.8 per cent in April and 0.1 per cent in March.
Existing home sales, which are also due out Thursday, are estimated to have fallen in June to 5.1 million units on an annualized basis, from 5.66 million in May. A larger drop off in existing home sales is expected in July and August when the full force of the expiry of the tax credit is reflected in the data, according to CIBC World Markets Inc.
"The post-tax-credit freefall in housing activity, aided and abetted by weak job and absent credit growth, appears destined to apply additional downward pressure on home prices," said Michael Gregory, a senior economist with BMO Nesbitt Burns Inc. On a year-over-year basis, U.S. house prices are expected to be down 1.5 per cent.
Although the closing date for eligible sales with the tax credit was extended to Sept. 30 from June 30, sales began to plummet during May and June, Mr. Gregory said. The signing deadline for the purchases was April 30.
TAKE A LOOK AT LUMBER
But look for a dramatic recovery in the U.S. housing market in 2011, said James Marple, a senior economist with TD Securities Inc. as a result of the pent up demand for housing. "The level of housing starts is expected to push towards the one million mark by the end of 2011," which is about double the currently depressed rate, he said.
Lumber prices have mirrored the housing volatility. Prices hit a four-year high in May of $367 (U.S.) for a thousand board feet before plunging back to $247 in early July, according to Dina Cover, an economist with TD Securities. "In 2011, we expect prices to gradually rise, reaching $340 by year end."
In the long run, the outlook for lumber markets is bullish, said Daryl Swetlishoff, an analyst with Raymond James Ltd. The industry should benefit from supply cutbacks, an increase in offshore shipments and a U.S. housing recovery, he said.
Raymond James has "outperform" ratings on International Forest Products Ltd., panel board maker Norbord Inc. and TimberWest Forest Corp., and "market perform" ratings on Canfor Corp. and West Fraser Timber Co. Ltd.