Contracts to purchase previously owned homes rose for a second month in April, a sign the residential real estate market is stabilizing after a weak start to the year.
The pending home sales index climbed 0.4 percent after a 3.4 percent increase in March that was the first gain in nine months, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for the April index to rise 1 percent.
Housing demand has cooled as higher prices and borrowing costs put ownership out of reach for some prospective buyers. While mortgage rates have been falling in recent weeks, an improving employment outlook and easier access to credit would provide an additional push for the industry.
“The housing market is getting better,” Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts, said before the report. “Going forward we don’t think it’s going to be a drag, it’s going to be a positive for growth.”
Estimates in the Bloomberg survey of 36 economists ranged from a decline of 1.5 percent to an advance of 4.2 percent.
Purchases fell 9.4 percent from the year prior after a 7.5 percent decrease in the 12 months that ended in March, the association reported.
The pending sales index was 97.8 on a seasonally-adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.
Pending home sales rose 5 percent in the Midwest and 0.6 percent in the Northeast. Contract signings declined 2.9 percent in the West and 0.6 percent in the South.
Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.
“Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers’ confidence,” NAR chief economist Lawrence Yun said as the report was released.
Home sales have been slow to emerge from a slump early this year. New property sales posted their first gain in three months in April, climbing 6.4 percent to a 433,000 annualized rate, Commerce Department data showed last week.
Gains in home prices have started to cool as tight lending standards limit demand. The S&P/Case-Shiller index of property values in 20 cities climbed 12.4 percent in March from a year ago, the smallest 12-month gain since July, data this week showed.
Housing began to slow in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.
Homebuilding subtracted 0.16 percentage point from gross domestic product in the first quarter after a 0.26 percentage-point hit in the final three months of 2013, figures from the Commerce Department showed today. The economy shrank 1 percent last quarter, the first contraction in three years.
Federal Reserve Chair Janet Yellen has flagged housing as a risk to the economy and Federal Reserve Bank of New York President William C. Dudley last week said he was surprised by the industry’s weakness.
Home-improvement retailers including Lowe’s Cos. and Home Depot Inc. are reporting improved outlooks after an unusually cold and snowy weather slowed sales.
“Although signals from the housing market are mixed, with existing home sales declining in recent months while home values continue to increase, we believe stronger job and income growth and gradually loosening credit conditions indicate that the environment for home improvement spending should remain favorable,” Lowe’s Chief Executive Officer Robert Niblock said.
“Homeowners increasingly believe that improvements made to their homes will increase their value and consumers’ views around personal finances continue to improve,” Niblock said on a May 21 earnings call. “We believe underlying home improvement industry demand remains intact, despite pressures exerted by unfavorable weather in the first quarter.”