Fewer Americans than forecast signed contracts to buy previously owned homes in June, a sign residential real estate is struggling to strengthen.
The index of pending home sales declined 1.1 percent from the month before after rising 6 percent in May, figures from the National Association of Realtors showed today in Washington. The median forecast of 39 economists surveyed by Bloomberg projected sales would rise 0.5 percent.
Limited availability of credit and sluggish wage growth are making it harder for prospective buyers to take the plunge, threatening to throttle the pace of the housing recovery. Continued gains in employment and a bigger supply of available homes will be needed to help accelerate the industry’s progress, which Federal Reserve Chair Janet Yellen has said is lackluster.
“Unfortunately, I don’t see much of an acceleration in housing demand going forward until we get a significant improvement in the labor market and the income part of it in particular,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who forecast a 1 percent decrease in pending sales. “An uneven recovery in the housing market is really one of the biggest concerns of the Fed.”
Stocks dropped as industrial shares sank and investors watched crises overseas before a Federal Reserve policy decision this week. The Standard & Poor’s 500 Index fell 0.5 percent to 1,968.1 at 10:20 a.m. in New York. The S&P 500 Supercomposite Homebuilding Index declined 1.8 percent.
Estimates in the Bloomberg survey of economists ranged from a decline of 3.1 percent to an increase of 3.5 percent. The May reading was revised from a previously reported 6.1 percent gain.
Purchases were down 4.5 percent from the year prior, on an unadjusted basis, after a 6.9 percent decrease in the 12 months that ended in May, the association reported.
While housing has recovered from its lows, “activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing,” Yellen said earlier this month during her semi-annual testimony to the Senate Banking Committee.
Fed policy makers meet over the next two days to discuss the outlook for central bank asset purchases and interest rates.
The pending home sales index was 102.7 on a seasonally-adjusted basis. A reading of 100 corresponds with the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.
“Supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates,” the group’s chief economist Lawrence Yun said in a statement.
Two of four regions showed a decrease in contract signings from a month earlier, led by a 2.9 percent drop in the Northeast. Contract signings fell 2.4 percent in the South, rose 0.2 percent in the West and climbed 1.1 percent in the Midwest.
Economists consider pending sales a leading indicator because they track purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.
The housing market has been slow to emerge from a lull induced last year as rising interest rates, tight lending standards and higher home prices combined to make it difficult for some buyers to enter the market. Data paint a choppy picture of residential investment, which subtracted from gross domestic product for the past two quarters in the first-back-to-back declines since 2009.
Sales of previously owned homes rose in June to an eight-month high, with purchases increasing 2.6 percent to a 5.04 million annual rate, led by gains in all four U.S. regions, NAR figures showed. At the same time, confidence among U.S. homebuilders climbed in July, with the National Association of Home Builders/Wells Fargo sentiment measure advancing to a six-month high.
Meanwhile, sales of newly built homes declined 8.1 percent to a 406,000 annualized pace in June, and followed a May reading of 442,000 that was a record 12.3 percent lower than estimated last month, Commerce Department figures showed last week. That report followed other data that showed new-home construction declined in June to a nine-month low as a record plunge in the South swamped gains in the rest of the U.S.
Meritage Homes Corp., a homebuilder operating in the South and West, is among companies projecting that a gradually improving economy will boost growth in the industry. The Scottsdale, Arizona-based builder posted revenue and earnings that rose from a year earlier as orders climbed and average sales prices increased.
“The U.S. housing recovery has entered a more stable, slower growth phase than we saw in 2012 and the first half of 2013,” Chief Executive Officer Steven Hilton said in a July 24 earnings call. “However, total starts and permits are still well below their historical levels, so we expect to see many years of growth to get back to the more normal levels.”