Pending U.S. Home Resales Show Housing Market Regaining Footing: Economy

More Americans than forecast signed contracts to buy previously owned homes in January, indicating the industry that sparked the last recession is improving.

The index of pending home resales climbed 2 percent after a 1.9 percent decrease the prior month that was smaller than previously estimated, the National Association of Realtors said today in Washington. The median forecast of 44 economists surveyed by Bloomberg News called for a 1 percent advance.

Buyers are returning to the real estate market on the heels of faster job gains for three straight months, falling home prices and record-low borrowing costs. At the same time, foreclosures are weighing on property values and construction, slowing the housing recovery.

“Housing demand has bottomed, and we should see some gradual improvement in sales,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York, who projected a 2 percent gain in pending sales. “The dark side of the story is still the oversupply and the expected pickup in foreclosures. That’s what policy makers really need to think about.”

Pending sales were projected to rise after an initially reported 3.5 percent drop in December, according to the Bloomberg survey. January estimates ranged from a decrease of 1.7 percent to an increase of 3.3 percent. Compared with a year earlier, January pending home sales climbed 10.3 percent.

The Standard & Poor’s 500 Index rose 0.2 percent to 1,368.03 at 11:34 a.m. in New York. The yield on the benchmark 10-year Treasury note declined to 1.93 percent from 1.98 percent late on Feb. 24.

Leading Indicator

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, and made up more than 90 percent of the housing market last year.

Still, lower appraisals and rejected mortgage applications due to stricter lending standards have resulted in more breakdowns of deals. In January, 33 percent of Realtors said they experienced contract failures, up from 9 percent who said so 12 months earlier, according to the association.

Elsewhere, Italian business confidence unexpectedly fell to a two-year low in February after the economy entered its fourth recession since 2001 under the weight of austerity measures to fight the sovereign debt crisis.

The manufacturing-sentiment index fell to 91.5, the lowest since November 2009, from 92.1 in January, Rome-based national statistics institute Istat said today.

South Korea

In Asia, there are signs of improving sentiment. South Korean manufacturers’ confidence on the prospects for March rose to a five-month high, increasing to 84 from 81, a Bank of Korea index showed in Seoul today. Sentiment also improved at other businesses, the report said. Data last week showed consumer confidence at a three-month high.

Existing-home (ETSLTOTL) sales rose to a 4.57 million annual rate in January, the group reported last week. While it was the best showing since May 2010, distressed properties made up the largest portion of all purchases since April. The median price fell 2 percent from January 2011.

Two of four regions saw an increase in pending home sales, today’s report showed. That included a 7.6 percent gain in the Northeast and a 7.7 percent increase in the South. Pending purchases dropped in the West and Midwest.

Builders such as Toll Brothers Inc. (TOL) and D.R. Horton Inc. are benefiting from job growth as well as cheaper properties and record-low mortgage rates.

Toll ‘Optimistic’

“We’re optimistic,” Doug Yearley, chief executive officer at Horsham, Pennsylvania-based Toll Brothers, said in a Feb. 22 interview with Bloomberg Television. “We have orders that are up significantly. We’re seeing deposits up, we’re seeing traffic up.”

The Realtors group’s measure of whether households earning the median income are able to buy a median-priced property at current interest rates reached record levels in the final three months of 2011, recent data showed.

Borrowing costs are also staying low. The average rate on a 30-year fixed loan was little changed at 4.09 percent in the week ended Feb. 17, from 4.08 percent the prior week, according to the Mortgage Bankers Association. It averaged 4.05 percent the week of Feb. 3, its lowest reading in records dating back to 1990.

Labor Market

Faster hiring and reduced job cuts may provide a further incentive to home purchases. The unemployment rate in January declined to 8.3 percent, the lowest since February 2009, while the economy generated 243,000 jobs, the most in nine months, Labor Department data showed on Feb. 3.

New-home purchases declined 0.9 percent in January to a 321,000 annual rate from a 324,000 pace in December that was stronger than previously reported, the Commerce Department said on Feb. 24. The median price fell 9.6 percent from the same month last year.

John C. Williams, president of the Federal Reserve Bank of San Francisco, said last week the housing “bust” is weighing on the economy and monetary stimulus is warranted to boost growth.

“Housing is a major factor in the deep downturn and sluggish recovery we’ve experienced in recent years,” Williams said in a speech in New York.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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