The number of contracts to purchase previously owned houses unexpectedly fell in June, indicating demand kept unraveling after the expiration of a homebuyer tax credit.
The index of pending home resales dropped 2.6 percent from the prior month, figures from the National Association of Realtors showed today in Washington. Economists projected a 4 percent gain, according to the median forecast in a Bloomberg News survey. The expiration of a government tax credit on April 30 caused the gauge to slump 30 percent in May, the most since data began in 2001.
The end of the incentive worth as much as $8,000 means a sustained recovery in housing now depends on employment and wage gains, which are taking time to rebound. Personal income and spending unexpectedly stagnated in June, a further indication the economy slowed entering the second half of the year, another report today showed.
“We’re still seeing the aftereffects of the homebuyer tax credit expiration,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who forecast a decline in June pending home sales. “The comeback from the housing downturn is likely to be sluggish.”
Estimates in the Bloomberg survey of 37 economists for June pending home sales ranged from a drop of 8 percent to a gain of 15 percent.
Stocks extended losses after the report, with the Standard & Poor’s 500 Index retreating from a 10-week high. The S&P 500 dropped 0.6 percent to 1,119.01 at 10:22 a.m. in New York. The 10-year Treasury note rose, pushing down the yield to 2.9 percent from 2.96 late yesterday.
Another report today from the Commerce Department showed both personal incomes and spending were unchanged in June. Incomes failed to rise for the first time since September and purchases were steady after a 0.1 percent gain the prior month that was smaller than previously estimated.
The Commerce Department also reported that factory orders dropped 1.2 percent in June, more than double the 0.5 percent decline projected by the median forecast of economists in a Bloomberg survey.
“The slow recovery in the labor market and the attendant uncertainty about job prospects are weighing on household confidence and spending,” Federal Reserve Chairman Ben S. Bernanke said yesterday in a speech in Charleston, South Carolina. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” he said.
Bernanke also said in the speech to southern U.S. state lawmakers that “notable restraints on the recovery persist,” including housing, commercial real estate and the labor market.
Pending home resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the Realtors’ existing-home sales report.
Three of the four regions showed a decline in June, today’s report showed, led by a 12 percent drop in the Northeast. Pending sales fell 9.5 percent in the Midwest and 0.2 percent in the West. They rose 3.7 percent in the South.
Compared with June 2009, nationwide pending sales dropped 20 percent.
The tax credit for homebuyers, which helped fuel a rebound in demand, required buyers to have signed contracts by the end of April. President Barack Obama and Congress had extended the credit in early November and expanded it to include some current homeowners.
Sales of existing homes, which account for about 90 percent of the housing market, fell 5.1 percent in June, the Realtors’ group said July 22.
“There could be a couple of additional months of slow home sales activity before picking up later in the year, provided the job market continues to improve,” Lawrence Yun, chief economist at the Realtors group, said in a statement.
New-home purchases, which make up the rest of the market and are tabulated when a contract is signed, totaled the second-lowest in history, Commerce Department figures showed on July 26.
Homebuilder stocks have fallen the last three months as the tax credit pulled sales forward. The Standard & Poor’s Supercomposite Homebuilding Index, which includes Pulte Group Inc. and Toll Brothers Inc., has fallen 24 percent since the end of April through yesterday. The broader S&P 500 has dropped 5.1 percent during that same period.
Foreclosures remain a headwind for the housing industry even as homes become cheaper and borrowing costs fall. The 30-year fixed mortgage reached an all-time low of 4.54 percent in the week ended July 29, according to Freddie Mac.
Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.
D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, said today that orders for homes under contract fell 3 percent in the three months ended June 30 from the same period a year earlier.
“As we expected, market conditions in the homebuilding industry have become more challenging after the expiration of the tax credit,” Donald R. Horton, the chairman, said in a statement. “Our net sales orders declined significantly in May and improved modestly in June and July.”
The Fort Worth, Texas-based builder said net income was $50.5 million in the fiscal third quarter, compared with a loss of $143.8 million a year earlier.