Existing home sales rose 7.2% to a 5.24 million annual rate in July, the most since August 2007 and the fourth straight month the figure increased, the National Association of Realtors (NAR) said Friday. Year-over-year sales grew 5%, the increase since September 2007, just before the markets came crashing down the following month.

“The housing market has decisively turned for the better,” said NAR chief economist Lawrence Yun. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

Rising sales numbers in the past few months may have triggered previously discouraged sellers to re-list their homes, according to Yun.

Total housing inventory at the end of July grew 7.3% to 4.09 million existing homes available for sale, representing a 9.4-month supply at the current sales pace. However, the raw inventory totals are 10.6% lower than they were last year.

Sellers are responding to rising inventories accordingly: The national median existing home price was $178,400 in July, 15.1% lower than a year ago. But the fact that buyers are dipping their toes back into the murky depths of the housing market doesn’t necessarily mean the sector is trending toward a full-blown recovery.

Turn of the Year Makes for Uncertain Future

One in three homes sales last month came from first-time buyers who benefited from the Obama administration’s $8,000 tax credit, which ends after November. First-timers accounted for almost the same amount in June with 29%. That means there could be a significant drop in purchases when that program expires.

The real estate industry is lobbying Congress to extend the first-time buyer tax credit, and Nevada Democratic Senate Majority Leader Harry Reid told reporters earlier this month an extension is “something we can get done.”

With or without a tax break, consumers in this economy are looking for a bargain much like they are with retail sales and auto sales. The bulk of the first-time tax credit sales have come from lower-priced homes, and NAR data supports that. Sales of homes that cost less than $250,000 were up almost 17.8% year-over-year through June. Meanwhile, sales decreased 13.3% in the $250,000-$500,000 bracket, 18.6% in the $500,000-$1 million range, and 32.7% in the $1 million – $4 million range.

Lost pricing power in the more expensive homes wasn’t lost on Pulte Homes Inc. (NYSE: PHM), which last Tuesday finished its acquisition of value-priced homebuilder Centex Corp.(NYSE: CTX), making Pulte the largest homebuilder in the United States.

“I’m not seeing a tremendous amount of good news on the job or economic front, so I do think it’s important that the [tax] credit get extended,” Pulte Chief Executive Officer Richard Dugas told The Associated Press.

The turn of the year isn’t likely to yield much good news on the job front. Most economists are expecting the unemployment rate to top out around 10%, and although July’s rate dipped one-tenth of a percentage point, the latest weekly initial unemployment insurance claims were discouraging, rising 15,000 to 576,000 for the week ended August 15.

“The improvement in the labor market has stalled,” Scotia Capital Inc. economist Derek Holt told Bloomberg News following the latest jobless claim figures. “Consumer spending will be pushed back on its heels for a longer time than markets are expecting.”

When the bleeding of jobs does peak, an upturn in employment could take some time as the United States experiences a jobless recovery. With an unemployment rate at or around 10%, home inventory levels could creep back in to 2008 territory.

“[The unemployment rate projection] indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate,” Fed economists wrote.  “This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing work forces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.”

Source: Home Sales Will Struggle to Rebound Without Tax Credit Extension

• Companies from Russia and China are most likely to use bribes when conducting business abroad, says a report from Berlin-based corruption watchdog Transparency International (TI), Reuters reported. The least likely to bribe were Belgium and Canada, according to group’s 2008 Bribe Payers Index.

• Four days after rival J.M. Smucker Co. (SJM) cut its list price for Folgers coffee products, Kraft Foods Inc. (KFT) announced an immediate 10-cent price cut for its Maxwell House and Yuban ground and instant coffees. It marks the fifth price cut by major U.S. roasters this year, Reuters reported.

• Sales of existing homes fell again in October, says a report from the National Association of Realtors. Its index of pending home resales fell 0.7% to 88.9 from a revised 89.5 in September, Bloomberg reported.

• Smelters in China asked mining companies including BHP Billiton Ltd. (ADR: BHP) to pay 74% more to process copper next year, two sources told Bloomberg. Earlier this week, China – the world’s biggest iron and copper consumer – asked BHP and other mining companies to scale back prices of iron ore by 82%.

• Yahoo! Inc. (YHOO) directors are moving in on selecting a candidate for its vacant chief executive officer post, and have gone as far as checking references on a few candidates, sources told The Wall Street Journal. One of the names considered is Arun Sarin, former CEO of Vodafone plc (VOD).

• FedEx Corp. (FDX) warned that it would finish its fiscal year 26% below the low end of its projected earnings, Dow Jones reported. “Demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen, substantially reducing our second- half outlook,” Chief Financial Officer Alan B. Graf Jr. said in a prepared statement.

• Lehman Brothers Holdings Inc., the bank that filed the biggest U.S. bankruptcy, asked a judge to allow it sell its French unit to Nomura Holdings for $1, Bloomberg reported. According to its filing, Lehman was “unable to find an alternate solution or buyer.” And for the price (and liabilities that come along with it), Nomura would get employees, commercial records, information technology, furniture and other assets.

• The National Football League announced it will lay off 150 jobs in the next 60 days to cut costs in the face of recession. The job cuts are within the league offices, not the teams, Reuters reported.

Source: Global Investing Roundups Wednesday, December 10th, 2008

• The U.S. Congress is considering a return to steel pennies and nickels that hasn’t been seen since World War II, according to the Associated Press. The cost of making a penny has risen to 1.26 cents and the cost of making a nickel has risen 7.7 cents, as soaring costs for copper, zinc, and nickel have soared in the past year.

• The European Union said yesterday (Wednesday) that Slovakia has met its criteria for adopting the euro. It will be the sixteenth country to join the group, effective January. “However, to ensure that the adoption of the euro is a success, Slovakia must pursue its efforts to maintain a low-inflation environment, be more ambitious with regard to budgetary consolidation and strengthen its competitiveness position,” Joaquín Almunia, EU commissioner for economic and monetary affairs, said in a statement.

• U.S. home sales dropped to a new low in March, signaling the housing slump has yet to bottom, the National Association of Realtors reported. The group’s seasonally adjusted index of pending sales for existing homes fell to 83.0 from a reading of 83.8 in February. The index stood at 103.9 in March 2007.

• “Grand Theft Auto 4,” Take-Two Interactive Software Inc.’s marquee video game, reeled in more than $500 million in global sales (or about 6 million units) in its first week on the shelves, Reuters reported. Take-Two was hoping strong GTA sales would bolster its position in talks with Electronic Arts Inc. (ERTS), which is offering a $2 billion, or $25.74 share, buyout.

• City officials of Vallejo, Calif. voted to file for bankruptcy, as declining housing-related tax revenue has left the San Francisco suburb unable to pay for basic services. Starting July 1, the city will have a $16 million deficit forecast for the year. “Nobody wants bankruptcy, but there doesn’t appear to be a whole lot of options left,” City Councilwoman Joanne Schivley told Bloomberg. “We are going to be out of money by June 30. It’s all a numbers game now.”

• The Walt Disney Co. (DIS) announced net income for the Burbank, Calif.-based company’s second fiscal quarter increased 22% to $1.13 billion, or 58 cents per share, Bloomberg News reported. Shares got a nice 3% boost, gaining 97 cents to close at $34.70 yesterday (Wednesday).

• Tech giant Cisco Systems Inc. (CSCO) announced it earned $1.77 billion, or 29 cents per share for its fiscal third quarter, down from $1.87 billion, or 30 cents, for the same period in the prior year, MarketWatch reported. Cisco shares slumped 2%, losing 55 cents to close at $25.78 yesterday (Wednesday).

• The U.S. Securities and Exchange Commission will require greater disclosure from investment banks following the liquidity run on The Bear Stearns Cos. Inc. (BSC). “One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence, there is great need for reliable, current information about capital and liquidity,” SEC Chairman Christopher Cox told reporters in Washington yesterday (Wednesday), Bloomberg News reported.

The buck fought off the latest bad economic news. The National Association of Realtors reported that its index of sales contracts on previously owned homes, considered a leading indicator of existing home sales, declined by 1.0% in March. It is now more than 20% below the March 2007 level.

But that was overridden by signs of weakness in the European Union. The European Commission trimmed its forecast for eurozone growth, saying it now expects a 1.7% rate in 2008 and an even weaker 1.5% rate in 2009. 2007 growth clocked in at 2.6%, and as recently as February EU growth for 2008 was projected to be 1.8%.

The European Central Bank and Bank of England both meet today, and they’re widely expected to keep interest rates at 4% and 5%, respectively.

Meanwhile, Federal Reserve Bank of Kansas City President Thomas Hoenig publicly spoke the I word yesterday, saying that inflationary pressures “now stand at unacceptably high levels.”

The recently released data from the National Association of Realtors are more evidence of the continuing slump the US property market.

The euro hit new highs today on the news, surging to $1.60.

“In the United States and in the United Kingdom, it is clear that the housing boom has been a bubble,” says Lord William Rees-Mogg in Whiskey and Gunpowder.

“In the United States, the bubble has already burst — the only question is when the US housing market will reach its low point. Britain is following the same track, but is somewhere between six and twelve months behind.

“The fall in the house market has wiped out very important assets of the banking system, leading to the collapses of Bear Stearns and Northern Rock and the distress of other banks. It is difficult to put a figure on the contraction of credit that has resulted.

“The I.M.F. has suggested $1 trillion, which is an impressive round number. What has actually been lost is a multiple of the fall in house values, since there is a multiplier effect on credit and on the willingness to lend.

“A bank which has lost a billion dollars in the housing market, or some derivative of the housing market, will feel itself to be short of capital and will seek to draw in as much cash as it can. It may well go from over-generous lending to exaggerated borrowing, which will take it from being a net lender to being a net borrower.”

The NAR pending home pending home sales index, a leading indicator of existing home sales, dropped 1.9% in February. The index is down 21.4% from the February 2007 level.

There has been plenty of shrill calls for government to intervene in the housing crisis, but what can – or should – government do?

“All through the boom, the bulls were claiming that the super-sized house price growth was based on fundamentals, and had nothing to do with slack lending practices,” says John Stepek in MoneyWeek.

“If they’re right, then prices shouldn’t fall very far before the fundamentals pick them back up again. If they were wrong, then house price gains were a bubble based on rampant speculation. Those bubbles need to be allowed to pop, so that people don’t keep throwing good money after bad.

“Of course, the reality is that many of the bulls knew this was a bubble. They just thought it was too big to blow. More than a few people used to argue that “the government will never let the housing boom end. It’s too important to voters.

“They will soon be reminded that there are few things less worthy of your faith than governments. For all its efforts, the Federal Reserve still hasn’t prevented US house prices from diving by more than 10%. Our leaders can’t hope to do any better.”