The number of Americans signing contracts to buy previously owned homes rose more than forecast in October as buyers took advantage of falling prices and low borrowing costs.
The index of pending home sales increased 10.4 percent, the biggest gain since November 2010, after falling 4.6 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 2.0 percent increase, according to the median estimate in a Bloomberg News survey.
While mortgage rates near record lows are helping some buyers purchase housing that’s growing more affordable as prices drop, 9 percent joblessness and tight lending standards are keeping others out of the market. A new wave of foreclosures may augment the property oversupply, triggering further slides in value and delaying an industry recovery.
“Any improvement in sales and building activity in the housing market is welcome,” Ellen Zentner, senior U.S. economist at Nomura Securities International Inc. in New York, said before the report. “While there has been no impetus for a renewed downturn in housing, there’s been no impetus as of yet for a turn upward.”
Estimates for pending home sales ranged from a drop of 2 percent to an increase of 5.6 percent, according to the median of 37 forecasts in the Bloomberg survey.
Pending home sales were up 7.3 percent from October 2010.
Three of four regions showed an increase in contract signings from a month earlier, led by the Midwest. Only the West showed a decrease, with a 0.3 percent decline.
“Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “There is a pent-up demand from buyers who normally would have entered the market in recent years.”
Today’s report showed an index level for pending home sales of 93.3 on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.
Because they track contract signings, pending home sales are considered a leading indicator. Existing homes sales are tabulated when a contract closes, typically a month or two later.
A report from the NAR last week showed sales of previously owned homes unexpectedly rose in October, suggesting that falling prices may be attracting buyers. Purchases increased 1.4 percent to a 4.97 million annual rate. The median price fell 4.7 percent from a year earlier.
As cheaper properties may make purchasing a home more appealing to some, the threat of continued declines could keep potential buyers waiting until they believe the market has bottomed.
A temporary halt on foreclosures stemming from faulty seizures that is coming to an end threatens to unleash more seized properties, further weighing on prices. In the third quarter, U.S. lenders started foreclosures on more homes, the first increase in a year.
“We’re in a market that’s quite fragile,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc., said during a Nov. 9 investor conference. “While delinquency rates have taken a little dip, on the whole, there is nothing that says that foreclosures are going to change dramatically over the near term, however you define that.”
The S&P/Case-Shiller index of home values in 20 cities slid 3.6 percent in September, capping 12 straight months of declines, the group said yesterday. Nationally, prices decreased 3.9 percent in the third quarter from the same time in 2010.