Pending Sales of U.S. Existing Homes Likely Fell in June

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A For Sale sign is shown in Hammond, Louisiana. Close

A For Sale sign is shown in Hammond, Louisiana.

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Photographer: Derick E. Hingle/Bloomberg

A For Sale sign is shown in Hammond, Louisiana.

The number of contracts to buy previously owned U.S. homes probably fell in June for a second time in three months, a sign the housing market is straining to regain its footing two years into the expansion, economists said before a report today.

A 2 percent decrease is projected after an 8.2 percent gain the prior month, according to the median forecast in a Bloomberg News survey of economists before the National Association of Realtors report. Separate figures may show jobless claims fell last week.

“Housing has continued to bounce along the bottom of the ranges,” said Sean Incremona, a senior economist at 4Cast Inc. in New York. “Considering the soft demand, we see it settling lower again.”

Unemployment above 9 percent and an expanding pipeline of foreclosures mean it may take years to clear the overhang of housing inventory, keeping a lid on the industry that caused the recession. The prospect of contract cancellations due to stricter underwriting standards and low appraisals means some signings may not translate into closings.

The National Association of Realtors will report the sales numbers at 10 a.m. in Washington. Estimates for pending home sales ranged from a drop of 5 percent to an increase of 8 percent, according to 39 forecasts in the Bloomberg survey.

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A for sale sign is displayed in the yard of a home in East Hampton, New York, U.S. Close

A for sale sign is displayed in the yard of a home in East Hampton, New York, U.S.

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Photographer: Paul Taggart/Bloomberg

A for sale sign is displayed in the yard of a home in East Hampton, New York, U.S.

Falling home prices are weighing on consumer confidence and keeping a lid on purchases. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in May from a year earlier, the biggest 12-month drop since November 2009, the group reported this week.

Builder Shares

The lack of improvement helps explain why homebuilder shares are underperforming the overall market. The Standard & Poor’s 500 Homebuilding Index has declined 6.9 percent this year, compared with a 3.8 percent gain in the broader S&P 500 Index.

Another Realtors’ report on July 20 showed sales of previously owned homes, which make up about 95 percent of the market, dropped in June to a seven-month low. Purchases decreased 0.8 percent to a 4.77 million annual rate. Cancellations jumped to 16 percent from 4 percent the prior month.

The increase in cancellations is partly due to home appraisals that are coming in lower than the values listed on contracts, according to the agents’ group. As banks respond by reducing the amount they’re willing to lend for the purchase, it “causes the deal to unravel,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Pending sales track contract signings while previously owned sales reflect the closings a month or two later.

Distressed Sales

Distressed deals, composed of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for about 30 percent of the total of closings in June.

Existing-home sales have fallen since reaching an annual peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that led to an 18-month recession. Purchases slumped to a 13-year low of 4.91 million last year.

Sales of existing homes have been driven by investor cash purchases of distressed properties since the downturn. Unemployment at 9.2 percent and stricter lending standards are making it harder for most Americans to take advantage of mortgage rates that are close to a record low.

Initial jobless claims fell to 415,000 last week from 418,000, according to the median projection in a Bloomberg survey of economists before the Labor Department’s 8:30 a.m. report. First-time filings for unemployment benefits, which stood at 418,000 at the end of 2010, have failed to show improvement.

Foreclosure Pipeline

Lender delays in processing home-loan defaults, while crimping current distressed transactions, will push as many as 1 million U.S. foreclosures from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said this month. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom.

“Supply is a foregone conclusion to stay high for the next couple of years as foreclosure inventory continues to be there on the resale market,” Richard Dugas, chief executive officer at Pulte Group Inc. (PHM), the biggest U.S. homebuilder, said in a teleconference last month. “We’re not predicting that it gets better anytime soon.”

                     Bloomberg Survey

====================================================
                           Initial    Cont.  Pending
                            Claims   Claims    Homes
                            ,000’s   ,000’s     MOM%
====================================================

Date of Release              07/28    07/28    07/28
Observation Period          23-Jul   16-Jul     June
----------------------------------------------------
Median                         415     3700    -2.0%
Average                        416     3697    -0.9%
High Forecast                  440     3720     8.0%
Low Forecast                   400     3674    -5.0%
Number of Participants          44       15       39
Previous                       418     3698     8.2%
----------------------------------------------------
4CAST                          425     ---     -3.2%
ABN Amro                       410     ---      1.0%
Action Economics               405     3700     ---
Aletti Gestielle               410     ---      ---
Ameriprise Financial           410     3680    -2.6%
Banesto                       ---      ---     -2.0%
Barclays Capital               415     ---     -2.5%
BBVA                           415     3705     0.0%
BMO Capital Markets            410     ---     -2.0%
BNP Paribas                    425     ---      ---
BofA Merrill Lynch             410     ---     -3.0%
Briefing.com                   440     3700    -3.5%
Capital Economics             ---      ---      2.5%
Citi                           410     3700     ---
ClearView Economics           ---      ---      7.5%
Commerzbank AG                 415     ---     -2.0%
Credit Suisse                  430     ---      ---
DekaBank                      ---      ---     -1.0%
Desjardins Group               410     ---      ---
Deutsche Bank Securities      ---      ---     -2.0%
Fact & Opinion Economics       415     ---      8.0%
First Trust Advisors           415     ---      ---
Helaba                         415     ---      ---
High Frequency Economics      ---      ---      0.0%
HSBC Markets                   430     ---      ---
IDEAglobal                     410     ---     -2.0%
Informa Global Markets         420     3710    -3.5%
ING Financial Markets          415     3690    -3.0%
Insight Economics              410     3675    -3.0%
J.P. Morgan Chase              415     ---     -2.0%
Janney Montgomery Scott       ---      ---     -1.0%
Jefferies & Co.                400     ---      ---
Landesbank Berlin              410     ---      ---
Landesbank BW                 ---      ---     -0.5%
Manulife Asset Management      405     3700     ---
Maria Fiorini Ramirez          425     ---      ---
Market Securities             ---      ---      3.5%
MF Global                      420     ---     -1.0%
Moody’s Analytics              415     3700     1.0%
Parthenon Group                403     ---     -0.7%
Pierpont Securities            420     ---      ---
PineBridge Investments         402     ---      0.0%
RBC Capital Markets            420     ---     -5.0%
RBS Securities                 410     ---      ---
Scotia Capital                 410     3700    -2.0%
Societe Generale               436     3674     3.5%
Standard Chartered             412     ---     -3.0%
State Street Global Markets    420     3708    -2.4%
Stone & McCarthy Research      430     ---      ---
TD Securities                  410     3700     2.0%
UBS                            410     ---     -2.0%
University of Maryland         420     ---      0.0%
WestLB AG                     ---      ---     -2.5%
Westpac Banking Co.           ---      ---     -4.0%
Wrightson ICAP                 425     3720    -3.0%
====================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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