Americans signed fewer contracts than forecast to purchase previously owned homes in August, showing the recovery in the housing market will be uneven.
The index of pending home resales dropped 2.6 percent after a revised 2.6 percent gain in July that was more than initially reported, figures from the National Association of Realtors showed today in Washington. The reading compared with a median forecast of a 0.3 percent gain in a Bloomberg survey of 40 economists.
Unemployment hovering above 8 percent since early 2009 and stricter credit access are limiting purchases, even as mortgage rates remain attractive. Federal Reserve policy makers have targeted the housing market with further accommodation measures in order to spur growth and reduce unemployment.
“It’s going to be really difficult for housing to gain much momentum here if the employment backdrop doesn’t cooperate, and that’s exactly what’s happening,” Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, said before the report. Limited labor market progress and tight lending standards also “will ultimately conspire to put a low ceiling on home sales,” he said.
Estimates in the Bloomberg survey ranged from a decline of 2.3 percent to a rise of 3 percent. July signings were originally reported as a 2.4 percent increase from the prior month.
Among other reports today, orders for durable goods slumped 13 percent, the most since January 2009, paced by a plunge in demand for civilian aircraft. Bookings for non-defense capital equipment excluding planes, a proxy for business investment, rose 1.1 percent after decreases of 5.2 percent in July and 2.7 percent in June, according to the Commerce Department.
The economy in the second quarter grew at a 1.3 percent annual rate, revised from a previous estimate of 1.7 percent, reflecting smaller gains in consumer spending and farm inventories. Household purchases increased at the weakest pace in a year, the Commerce Department’s data showed.
Three of four regions showed a decrease in pending sales, according to today’s report from the real-estate agents’ group. That included a 7.2 percent drop in the West, a 2.6 percent decrease in the Midwest and a 1.1 percent fall in the South. They climbed 0.9 percent in the Northeast.
Compared with a year earlier, the index increased 9.6 percent after a 15.2 percent gain in the prior 12-month period.
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.
Purchases of new homes, logged when contracts are signed, hovered close to a two-year high in August, the Commerce Department said yesterday. Sales of previously owned houses climbed to the highest since May 2010, the Realtors group reported on Sept. 19.
Property values also are improving. The S&P/Case-Shiller index of home prices in 20 cities increased more than forecast in July from a year earlier, a report from the group showed earlier this week.
Borrowing costs are bolstering the industry. The average rate on a 30-year fixed mortgage dropped to 3.49 percent in the week ended Sept. 20, matching the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac.
The Fed has also committed to purchasing $40 billion of mortgage debt a month, which may underpin a housing market that Chairman Ben S. Bernanke said has been “one of the missing pistons in the engine.”
“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing,” Bernanke said in a Sept. 13 press conference after the central bank announced the debt-buying plans.
The Fed’s so called quantitative easing is encouraging builders like Miami-based Lennar Corp. (LEN)
“We see with QE3 that the government is focused on the home mortgage market and is working to keep rates low and to maintain an orderly flow of capital to the mortgage market,” Stuart Miller, the company’s chief executive officer, said on a Sept. 24 earnings call. “This is an important harbinger of future focus on nurturing a housing recovery.”
Foreclosures may be starting to slow. Distressed sales accounted for 22 percent of existing-home purchases in August, the lowest since at least October 2008 when record-keeping began, the Realtors data showed. Such sales are comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage.
“It’s likely to reassert itself as an issue in the fall and in the winter, when the share of distressed transactions will actually rise and it’ll probably either slow down the improvement in home prices or maybe even reverse it for a couple of months,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
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