The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand.
The 4.6 percent decrease in the index of pending home sales, the biggest since April, followed a 1.2 percent drop the previous month, the National Association of Realtors said today in Washington. Economists forecast a 0.4 percent gain, according to the median of 38 estimates in a Bloomberg News survey.
Consumer sentiment at depressed levels, unemployment above 9 percent and limited access to credit are preventing Americans from taking advantage of near record-low mortgage rates and discounted pricing on homes. The prospect of more foreclosures adding to supply and further weighing on prices means any recovery in housing may take years.
“Sales continue to bump along the bottom,” Anika Khan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “A meaningful recovery in sales will likely not occur until the mountain of foreclosures and pending foreclosures clears.”
Estimates for pending home sales ranged from a drop of 1.5 percent to an increase of 2.8 percent, according to the Bloomberg survey. Pending sales rose 7.9 percent from September 2010.
The economy grew at a 2.5 percent annual rate in the third quarter, the fastest pace in a year, helped by gains in consumer spending and business investment, the Commerce Department reported earlier today. That compared with 1.3 percent growth in the second quarter.
A Labor Department report today showed initial jobless claims fell by 2,000 to 402,000 in the week ended Oct. 22. The number of people collecting unemployment benefits fell in the prior week by 96,000 to 3.65 million, the fewest since September 2008.
Consumer confidence declined last week as Americans’ views of the economy sank to the lowest since the recession, highlighting the challenges facing the recovery, another report showed. The Bloomberg Consumer Comfort Index fell to minus 51.1 in the week ended Oct. 23, the lowest in a month, from minus 48.4 the prior period. Ninety-five percent of those surveyed had a negative opinion about the economy, the worst since April 2009 and one percentage point shy of a record.
Pending home sales dropped in all four regions, led by a 6.2 percent slump in the Midwest.
“A combination of weak consumer confidence and continuing tight lending criteria held back homebuyers,” NAR chief economist Lawrence Yun said in a statement today.
Today’s report showed an index level for pending home sales of 84.5 on a seasonally adjusted basis, the weakest since April. A reading of 100 is consistent with the average level of contracts in 2001, when record-keeping began, and coincides with “historically healthy” home-buying traffic, according to the NAR.
Another Realtors’ report, on Oct. 20, showed sales of previously owned homes, which make up about 95 percent of the market, fell 3 percent in September to a 4.91 million annual pace, and 18 percent of real estate agents polled said they had at least one pending contract canceled last month.
The cancellations reflected mortgage applications that were refused or because appraised home values were coming in below the contracted sales price, NAR said last week.
Pending sales track contract signings while previously owned sales reflect the closings a month or two later.
Existing-home sales have fallen since reaching an annual peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that led to an 18-month recession. Purchases last year fell to 4.91 million, the lowest since 1997.
Default notices rose 14 percent in the third quarter from the prior three months, a sign lenders may be speeding up the repossession process, RealtyTrac Inc. said this month. Foreclosure filings declined 34 percent in the third quarter from a year earlier as states continued to probe allegations of foreclosure “robo-signings” and lenders scrutinized paperwork, according to RealtyTrac.
Builders FirstSource Inc., a Dallas-based maker of building products such as lumber, doors and windows sold to construction companies, is among businesses noting little demand for housing.
“Housing demand remains weak due to the struggling economy, high unemployment and the limited availability of mortgage financing,” Floyd Sherman, chairman and chief executive officer, said on an Oct. 21 conference call with analysts.
President Barack Obama this week unveiled a plan to let homeowners refinance mortgages regardless of how much their houses have dropped in value, expanding a government effort to chip away at one of the economy’s most unyielding problems.
Lawmakers and analysts briefed on the plan by the independent Federal Housing Finance Agency estimate they will help less than 1 million borrowers -- and perhaps as few as 600,000 -- of the 11 million whose mortgages are greater than the value of their homes.