The number of Americans signing contracts to buy previously owned homes plunged more than forecast in April, a sign the industry that triggered the recession continues to struggle.
The index of pending home resales declined 12 percent after a revised 3.5 percent increase the prior month, the National Association of Realtors said today in Washington. The median forecast in a Bloomberg News survey called for a 1 percent decline.
The prospect that foreclosures will continue to drive down property values may keep buyers on the sidelines awaiting further price declines. Unemployment at 9 percent and stricter credit requirements are further signs that a housing recovery may take years to unfold.
“This makes me believe it will take longer to clear the excess inventory,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “It pushes the housing recovery even further out into the future.”
Other reports today showed consumer spending rose less than forecast in April and consumer sentiment climbed this month.
Consumer purchases rose 0.4 percent in April after a revised 0.5 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed. The increase compared with the 0.5 percent median estimate of economists surveyed by Bloomberg News. Incomes climbed 0.4 percent, matching the median forecast.
The Thomson Reuters/University of Michigan final May index of consumer sentiment increased to 74.3 in May from 69.8 a month earlier, the group reported. The median forecast of 64 economists surveyed by Bloomberg projected a reading of 72.4, the same as the preliminary figure issued earlier this month. The index averaged 89 in the five years leading up to the recession that began in December 2007.
Stocks trimmed gains after the reports. The Standard & Poor’s 500 Index rose 0.2 percent to 1,328.8 at 10:26 a.m. in New York, after climbing as much as 0.5 percent earlier. Treasury securities were little changed.
Sales were projected to fall after an originally reported gain of 5.1 percent in March, according to the median of 39 forecasts in the Bloomberg survey. Estimates ranged from a decline of 3 percent to a gain of 5.5 percent. From a year earlier, pending home sales fell 27 percent.
Three of four regions saw decreases from the prior month, today’s report showed, led by a 17 percent drop in the South. The Midwest decreased 10 percent, indicating bad weather may have played a role in those regions.
Last month was the 10th wettest April since record-keeping began in 1895, with 875 preliminary reports of tornadoes, a record for any month, according to the National Climatic Data Center. Most wind damage occurred from the southern and central plains to the Atlantic coast.
Flooding on the Mississippi River may continue to constrain homebuilding and sales in the region this month, Morgan Stanley economists David Greenlaw and Ted Wieseman wrote in a note to clients May 17.
“The pullback in contract signings is disappointing and implies a slower-than-expected market recovery in upcoming months,” Lawrence Yun, the NAR’s chief economist said in a statement. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”
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.
Previously owned homes sold at a 5.05 million annual rate in April, down 0.8 percent from the prior month, data from the National Association of Realtors showed May 19. All-cash deals accounted for 31 percent of transactions, and distressed properties, including foreclosures and short sales, made up 37 percent, the group said.
The supply of existing houses will probably remain an issue for builders and buyers alike. CoreLogic Inc. in March estimated about 1.8 million homes were more than 90 days delinquent, in foreclosure or bank-owned, a so-called “shadow inventory” set to add to the unsold supply of 3.87 million previously owned homes on the market at the end of April.
Foreclosures have weighed on home prices. The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent in February from a year earlier, the biggest 12-month decrease since November 2009, the group said last month. The gauge is down 33 percent from its July 2006 peak.
Prices tracked by the Federal Housing Finance Agency showed a 5.5 percent decline in the first quarter from a year earlier, the biggest drop in almost two years, another report showed this week.
In addition to the drop in values, persistent joblessness may be keeping potential buyers away. The 9 percent unemployment rate last month, almost two years into an economic recovery, compares with an average of 4.8 percent in the three years before the recession began.
Builders aren’t optimistic. Douglas Yearley Jr., chief executive officer at Toll Brothers Inc., the largest U.S. luxury-home builder, on May 11 told a housing conference in New York that the spring home-selling season has been “disappointing” and that “people are still scared.”
Demand for new houses will remain weak into next year, Bill Wheat, chief financial officer of D.R. Horton Inc., told the same conference.
“We still see housing demand at very weak levels, volume levels at very low levels today,” Wheat said. “In terms of the overall strength of the economy, we really don’t see enough drivers that will change that pattern significantly in 2011, and we feel like it could still be a struggle in 2012.”