WASHINGTON — Housing led the United States 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 percent of gross domestic product in the second quarter, according to West Chester, Pa.-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.
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A report today by the Chicago-based National Association of Realtors will show July sales of existing homes plummeted 12.9 percent from June, the biggest monthly loss of 2010, according to the median estimate of economists surveyed by Bloomberg.
New-home sales, which account for less than one-tenth of housing transactions, stayed at the second-lowest level on record last month, economists predict Commerce Department data will show on Wednesday.
"Housing continues to be stuck in the doldrums," said Jeffrey Frankel, a member of the business-cycle dating committee at the National Bureau of Economic Research, the arbiter of when recessions begin and end, and a professor at Harvard University.
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 Inc., an Irvine, Calif.-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 percent were canceled by the end of July, the Treasury Department said Aug. 20. More than half of all modifications defaulted again within 12 months, the Office of the Comptroller of the Currency said June 23.
Shadow inventory, or the number of homes repossessed or in default that eventually will be offered for sale, stood at 7.3 million in the first quarter, according to Laurie Goodman, an analyst in New York at mortgage-bond broker Amherst Securities Group. As those properties hit the market, prices will come under pressure and buyers will wait for better deals.
"The only thing that's going to fix the housing markets right now is a work-through of what excess supply is on the markets and improvement in unemployment," Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia, said Monday in an interview on Bloomberg Television. "That process is a very, very long-term process."
Those sidelined house hunters include Marion and Jim Lasswell, who said they spend most weekends looking at homes for sale near Raleigh, N.C. His engineering job at iRobot Corp. is secure, the couple's credit is good and they have saved enough for a 20 percent down payment, Marion Lasswell said. The problem: They don't think the market has hit bottom.
"We're still watching prices drop," Lasswell, 38, a registered nurse, said in a telephone interview. She said they won't buy "until there's an awesome deal."