Sales of new homes forecast to rise 2 percent

WASHINGTON (AP) - Sales of new homes are expected to post a modest increase in October, reinforcing data this week that showed the real estate market is regaining its footing after a dramatic collapse.

The Commerce Department's report on October new home sales, to be released Wednesday at 10 a.m. EST, is forecast to show a 2 percent increase to a seasonally adjusted annual rate of 410,000, from 402,000 in September, according to economists polled by Thomson Reuters.

Since the report reflects signed contracts to buy homes, rather than completed sales, new home buyers in October were acting before lawmakers this month decided to extend the tax credit for first-time buyers and expand it for existing homeowners.

Now that the credit will cover contracts signed by April 30, "we'll probably see new home sales trend higher over the next two to three months, perhaps fairly strongly," said Paul Dales, U.S. economist at Capital Economics Ltd.

The building industry lobbied hard for the tax credit extension, and builders have been feeling better about their business prospects these days.

Last month, Ryder Homes of Nevada Inc. resumed construction on houses at two of its communities around Reno. "We're finding people aren't coming in willing to wait six months," said Rob Dunbar, Ryder's land development manager.

The housing market, buoyed by federal assistance, has been recovering from the worst downturn in decades.

The National Association of Realtors said Monday home resales rose 10 percent from September to October, the biggest monthly increase in a decade.

In addition to the tax credit, buyers are being attracted by low prices and mortgage rates. The Federal Reserve has kept interest rates in the 5 percent range since the spring, making homeownership more affordable for many buyers.

Home prices, as measured by the Standard & Poor's/Case-Shiller index of 20 major cities, rose 0.3 percent in September, in the fourth straight monthly increase, data Tuesday showed.

But many experts predict prices will hit a new low next spring, perhaps falling another 5 to 10 percent, as more foreclosures get pushed onto the market.

In Tucson, Ariz., builder John Wesley Miller has had to cut prices as much as 20 percent to compete against foreclosures.

Home prices are so low, he's stopped building, saying: "The best investment I've got right now is dirt."

--

AP Real Estate Writer Alex Veiga contributed to this report.