(Bloomberg) — The erosion of the nation’s housing market extended into the fourth quarter, posing a risk that the weakness will permeate the rest of the US economy, a pair of reports this week may show.Purchases of previously owned homes dropped 0.5 percent last month to an annual rate of 6.15 million, the weakest since January 2004, according to the median estimate in a Bloomberg News survey of economists before the National Association of Realtors’ report on November 28. New-home sales also fell, a report from the Commerce Department a day later will show, according to the survey. Slumping home sales and record numbers of houses on the market held down economic growth last quarter, even as consumers and companies increased their spending. Economists expect the government this week will report third-quarter growth at an annual rate of 1.8 percent, the slowest this year.

“Housing is in recession,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “But we want to know if the housing market weakness is spreading to the rest of the economy, and my sense is that growth is going to pick up.”

Aside from the housing market, seeds of optimism for the rest of the economy abound. Gasoline prices have fallen about 25 percent from a high in August, the Dow Jones Industrial Average is close to a record, and job growth is powering wage gains. Americans are turning more confident as a result. The Conference Board on Nov. 28 is forecast to report that its index of consumer optimism rose to 106 this month from 105.4.

“For every reason to be worried about the consumer, there’s a good reason to be upbeat,” said Cary Leahey, senior managing director at Decision Economics Inc. in New York. “The most important single determinant to consumer spending is the job situation, and that’s the best it’s been in six years.”

Federal Reserve officials are waiting to see how the housing-market slowdown plays out in the economy. The Fed has kept interest rates unchanged for the last three meetings, counting on cooler economic growth to help contain inflation, which central bankers say is still a risk.

Fed Chairman Ben S. Bernanke likely won’t stray from that assessment when he speaks about the economic outlook on November 28 in New York, economists said.

Philadelphia Fed President Charles Plosser and Chicago Fed President Michael Moskow are also addressing the economy at separate events.

The Commerce Department on November 29 will issue its first revision to third-quarter growth. Economists expect the government to revise its estimate of gross domestic product growth to a 1.8 percent annual rate from 1.6 percent, according to the median estimate in a Bloomberg News survey. A narrower trade deficit and more spending on commercial buildings probably accounted for the revision, economists said.

Declining home construction sapped the economy last quarter, subtracting more than 1 percentage point from gross domestic product. The current quarter may witness a similar result, economists said.

Sales of new homes dropped 2.4 percent to an annual rate of 1.048 million in October, according to the median forecast in a Bloomberg survey of economists. New housing accounts for about 15 percent of the market, and previously owned homes the rest. “The housing market remains the biggest risk to our outlook,” said John Shin, economist at Lehman Brothers Holdings Inc., in a report to clients. “The large imbalance between supply and demand has put pressure on prices and has caused homebuilders to cut production rapidly.”

Price gains continue to slow, a report from the Office of Federal Housing Enterprise Oversight in Washington may show on Nov. 30. Prices of single-family homes rose 10.1 percent in the second quarter from the same three months a year earlier. Compared with the first quarter, prices rose at an annualised 4.7 percent pace. Economists at Lehman Brothers project a 2 percent annualised increase in the third.

Less home-price appreciation has left Americans feeling less wealthy, and growth in consumer spending has cooled. Personal spending rose 0.1 percent for a second month in October, economists forecast the Commerce Department to report on November 30. The figures aren’t adjusted for changes in prices of goods such as gasoline, which has limited the gains in spending.

The same report will show a 0.5 percent rise in incomes, lifted by wage growth stemming from a 4.4 percent unemployment rate, economists forecast. That may bode well for the holiday shopping season.

“With housing affecting consumer perceptions and consumer spending, we still haven’t seen that tail off from the consumer,” said Stephen Wood, portfolio strategist at Russell Investment Group in New York. “What we see is the consumer is still holding his own going into Christmas and the first quarter of next year.”

Holiday sales were off to a strong start at Macy’s stores on the day after Thanksgiving, Federated Department Stores Inc. Chief Executive Officer Terry Lundgren said. “They are shopping in big quantities and walking out with bags,” Lundgren said in a November 24 interview.

In other reports this week:

[bul] Orders for durable goods fell 5 percent in October, after an 8.3 percent increase, on fewer bookings for Boeing Co. aircraft, according to the survey median. Excluding transportation equipment, durables orders rose 0.2 percent after a 0.5 percent increase, the survey showed before the Commerce Department’s Nov. 28 report.

[bul] Construction spending dropped 0.4 percent in October on less homebuilding, economists forecast a Commerce Department report on Dec. 1 to show.

[bul] Also on December 1, the Institute for Supply Management may report that its index of manufacturing in the US rose to 51.8 in November, from a month-earlier reading of 51.2 that was the lowest since June 2003, the Bloomberg survey showed. Manufacturing is being restrained by weaker motor vehicle production, economists said.