The number of Americans signing contracts to buy previously owned homes fell in January, a sign the industry that triggered the recession was struggling at the start of 2011.
The index of pending home resales dropped 2.8 percent after a revised 3.2 percent decrease the prior month that was initially reported as a gain, figures from the National Association of Realtors showed today in Washington. The median estimate in a Bloomberg News survey of economists called for a 2.3 percent decrease.
Foreclosures that are driving down prices and unemployment at 9 percent signal the housing market may not make much headway this year. Interest rates that are rising pose another challenge to real estate, which may lag behind the rest of the economy this year.
“This is worrying,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “People may be holding back because they think there are more foreclosures coming. We need a strong pickup in jobs to see people buying again.”
Pending home sales were projected to fall after an originally reported gain of 2 percent in December, according to the median of 39 forecasts in the Bloomberg survey. Estimates ranged from a drop of 6 percent to an increase of 1.5 percent.
Consumer spending in the U.S. rose 0.2 percent in January, less than forecast and the smallest gain since June, as increasing food and fuel prices caused Americans to cut back on other goods and services, Commerce Department figures showed earlier today.
Businesses in the U.S. unexpectedly grew in February at the fastest pace in two decades, indicating manufacturing remains at the forefront of the expansion. The Institute for Supply Management-Chicago Inc. said its business barometer rose to 71.2 this month, the highest since July 1988, from 68.8 in January.
Stocks extended gains after the report, with the Standard & Poor’s 500 Index rising 0.7 percent to 1,328.56 at 10:32 a.m. in New York. The yield on the benchmark 10-year Treasury note was little changed from Feb. 25 at 3.41 percent.
From January 2010, pending home sales were down 4.4 percent.
Three of four regions showed a decrease in contract signings from a month earlier, today’s report showed, led by a 7.3 percent drop in the Midwest and a 5.2 percent decrease in the West. Purchases rose 1.4 percent in the South.
Snow covered about 70 percent of the country in the middle of last month, according to the National Climatic Data Center. That may have prevented potential buyers from venturing out to new developments.
Housing demand see-sawed last year, reflecting a boost from a national home buyer tax incentive of as much as $8,000 that gave way to a plunge in sales by mid-2010 as the credit ended.
With sales yet to show sustained strength, builders have slowed construction efforts. Housing permits fell 10 percent to a 563,000 annual rate in January, the Commerce Department said last week.
More distressed homes may come on the market this year after home seizures were delayed due to state investigations and bank reviews of foreclosures. The number of homes receiving a foreclosure notice will climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac Inc., an Irvine, California-based data seller, said last month.
That will put more pressure on prices. The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from a year earlier, the biggest 12-month decrease since December 2009, the group said this week. Prices were down 31 percent from their peak in July 2006.
“My intuition rates the probability of another 15, 20, even 25 percent real-home price decline as substantial,” Robert Shiller, a co-founder of the index, said on a conference call last week. “It’s a substantial risk.”
Pending home sales are considered a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later.
Sales of previously owned homes, which now make up more than 90 percent of the market, unexpectedly climbed in January to the highest level in eight months, led by rising demand for distressed properties. Sales increased 2.7 percent to a 5.36 million annual rate, according to figures from the National Association of Realtors.
Distressed sales accounted for 37 percent of the total, the highest proportion in 12 months, and all-cash sales amounted for 32 percent, the highest since the group started tracking that category in 2008, the group said.
Purchases of new houses in the U.S. fell 13 percent to a 284,000 rate in January, close to a record low of 274,000, the Commerce Department said last week.
Rising borrowing costs represent another hurdle. The average rate on 30-year fixed mortgages matched or exceeded 5 percent for a third period in the week ended Feb. 18, the first time that’s happened since April, the Mortgage Bankers Association said last week. Rates have been rising from a record low of 4.21 percent reached in October.
Homebuilders keep posting losses. D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, on Jan. 27 reported a fiscal first-quarter loss that was wider than analysts expected.
“I don’t see anything in ‘11 that’s going to make ‘11 better than ‘10,” D.R. Horton Chief Executive Officer Donald Tomnitz said during a conference call. “We need job growth, we need consumer confidence and we still have issues with qualifying people with tighter mortgage underwriting” standards.
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