Sales of U.S. previously owned homes unexpectedly dropped in July, reflecting an increase in contract cancellations due to strict lending rules and low appraisals.
Purchases decreased 3.5 percent to a 4.67 million annual rate, the weakest since November, figures from the National Association of Realtors showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for an increase in sales. The median price dropped 4.4 percent from a year earlier, and 16 percent of real estate agents polled said they had at least one pending contract canceled last month.
Even with historically low borrowing costs and foreclosure-induced price declines, fewer homebuyers are entering the market. Job growth that’s failed to bring unemployment below 9.1 percent alongside a steady supply of distressed dwellings indicates many Americans may still not be in a position to consider purchasing a home.
“Home buying will be conservative in the months ahead until we get a sense of which direction this economy is heading,” said Robert Dye, chief economist at Comerica Inc. in Dallas, who forecast a decline for July. “No one wants to buy into a soft housing market. We’ve seen prices remain soft in many areas.”
Existing home sales were projected to increase to a 4.9 million rate in July, according to the median of 74 forecasts in a Bloomberg News survey. Economists’ estimates ranged from 4.59 million to 5.15 million. The NAR revised the June sales rate to 4.84, up from a previously estimated 4.77 million rate.
Other reports today showed the cost of living rose more than forecast in July, more workers than forecast filed claims for jobless benefits last week and manufacturing in the Philadelphia Fed region plunged.
The consumer-price index increased 0.5 percent from June, more than twice the 0.2 percent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed. The so-called core gauge, which excludes volatile food and fuel costs, rose 0.2 percent.
The number of applications for unemployment insurance payments climbed by 9,000 to 408,000 in the week ended Aug. 13, the highest in a month, other Labor Department figures showed. Economists surveyed by Bloomberg projected a rise in claims to 400,000, according to the median forecast.
The Fed Bank of Philadelphia’s general economic index plunged to minus 30.7 this month, the lowest since March 2009, from 3.2 in July. The August gauge exceeded the most pessimistic projection in a Bloomberg survey in which the median estimate was 2. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
Stocks extended losses after the reports. The Standard & Poor’s 500 Index slumped 4.3 percent to 1,142.97 at 10:34 a.m. in New York. Treasury securities jumped, sending the yield on the benchmark 10-year note down to 2.04 percent from 2.17 percent late yesterday.
Also today, consumer confidence in the U.S. economic outlook slumped in August to the lowest level since the recession, the Bloomberg Consumer Comfort Index showed. The monthly expectations gauge dropped to minus 34, the weakest since March 2009, from minus 22 in July. The weekly measure of current conditions was minus 48.3 for the period ended Aug. 14 compared with minus 49.1.
NAR chief economist Lawrence Yun said in a news conference today as the figures were released that cancellations in the past two months were up from about 10 percent last year. Difficulty in getting appraisals that match the loan amount and “overly stringent” lending rules were among the reasons for the increase, he said. In addition, member agents mentioned an increase in “other problems,” which include waning buyer confidence, he said.
Investor purchases showed a “slight decline” in July from earlier this year, Yun said.
The median price of a previously owned unsold home decreased to $174,000 from $182,100 in July 2010.
The “silver lining” of today’s report is that inventories look to be under control, Yun said. There were 3.65 million houses on the market, which translates to a 9.4 months’ supply at the current sales rate. Inventory during this time of year usually reaches about 4 million homes, Yun said, adding that it may decline to about 3 million by the end of 2011.
Housing, the industry that precipitated the U.S. recession lasting from 2007 to 2009, has not recovered at the same pace as the rest of the economy as unemployment hovers around 9 percent for a second year. After reaching an annual peak of 7.08 million in 2005, existing home sales fell to 4.91 million last year, the lowest level since 1997.
Lower mortgage rates that have helped increase refinancing haven’t boosted home sales. The average rate on a 30-year fixed loan decreased to 4.32 percent in the week ended Aug. 12, the lowest since November, according to the Mortgage Bankers Association. Meanwhile, the group’s purchase gauge fell 9.1 percent that week to the lowest level in a year and the second-weakest since 1997.
“The latest mortgages applications data reinforce that low mortgage rates, while helping, aren’t going to solve this problem,” said Eric Green, chief market economist at TD Securities Inc. in New York. “They help mainly with refis.”
About three-quarters of banks said they expected the pace of mortgage lending “to remain at about the same level through the rest of 2011,” according to the Federal Reserve’s survey of senior loan officers earlier this week.
“Nothing’s really strong out there, and I would reiterate that most of our markets continue to still be soft, softer, and softest,” D.R. Horton Inc. Chief Executive Officer Donald Tomnitz said on a conference call with investors on July 28. “I would anticipate that ‘12 will be better than ‘11 but I don’t expect it to be significantly better.”