Pending U.S. Sales of Existing Homes Increased 4.3% in August
The number of contracts to purchase previously owned homes in the U.S. increased for a second month, a sign the housing market is beginning to stabilize.
The National Association of Realtors’ index of pending home resales rose 4.3 percent in August, more than forecast, after a revised 4.5 percent gain the prior month that was less than initially estimated. Compared with the same month a year ago, pending sales were down 18.4 percent.
Home sales have steadied after plunging in the months following the expiration of a housing tax credit. Unemployment projected to stay above 9 percent through 2011 may depress demand in coming months even as record-low mortgage rates and lower prices make homes more affordable.
Housing is “bouncing along the bottom, unable to gain any traction, but with little reason to believe it’s going to go any lower,” said Eric Green, chief market economist at TD Securities Inc. in New York. “All of the froth has been eliminated from the bubble and all we need now is for confidence to turn higher and job growth to accelerate.”
Economists forecast pending home sales would increase 2.5 percent, according to the median of 39 projections in a Bloomberg News survey. Estimates ranged from a drop of 2 percent to an increase of 5.6 percent.
Separate figures from the Commerce Department showed factory orders declined 0.5 percent in August because of a decrease in bookings for aircraft. Orders for business equipment increased, indicating companies are investing.
Stocks fluctuated after the reports. The Standard & Poor’s 500 Index declined less than 0.1 percent to 1,146.09 at 10:25 a.m. in New York. The yield on the 10-year Treasury note dropped to 2.49 percent from 2.51 percent on Oct. 1.
Contract signings rose in three of four regions in August, led by a 6.7 percent increase in the South, today’s report showed. Pending sales were up 6.4 percent in the West and 2.1 percent in the Midwest. They dropped 2.9 percent in the Northeast.
Financing costs are getting cheaper for homebuyers. The average rate on a 30-year fixed mortgage matched a record low 4.32 percent in the week ended Sept. 30, according to Freddie Mac. At the same time, the market is being restrained by a lack of employment opportunities.
“Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” Lawrence Yun, the group’s chief economist, said in a statement. “However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.”
After averaging 9.3 percent in 2009, the unemployment rate will average 9.6 percent this year and 9.2 percent in 2011, according to the median forecast of economists surveyed by Bloomberg last month. The last time unemployment exceeded 9 percent for three consecutive years was 1939 to 1941.
Higher rates of joblessness limit home sales and increases the likelihood foreclosures will keep rising. Home seizures reached a record in August for the third time in five months, RealtyTrac Inc. said Sept. 16.
The labor market is also a reason why Federal Reserve policy makers may respond with more stimulus. The outlook for job growth and inflation is “unacceptable” and more monetary easing is probably needed to spur growth and avert deflation, Fed Bank of New York President William Dudley said in a speech Oct. 1.
“Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too longer,” Dudley said to a Society of American Business Editors and Writers conference.
Lowering long-term interest rates by restarting purchases of Treasuries or mortgage debt would have a “significant” effect on the economy by supporting the value of homes and stocks, making housing and refinancing mortgages more affordable and reducing the cost of capital for businesses, he said.
The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama’s performance.
Pending home sales are considered a leading indicator because they track contract signings. Existing home sales are tabulated when a contract is closed, which typically occurs a month or two later.
Sales of previously owned homes, which account for about 90 percent of the housing market, rose to a 4.13 million rate in August, the Realtors’ group said Sept. 23. The pace of sales was the second-lowest in at least a decade of record-keeping.
The government’s homebuyer tax credit of up to $8,000 required contracts be signed on April 30 and closed by Sept. 30. Many of the closings occurred in May and June because the original incentive called for closings to occur by June 30.
Orders at KB Home, a California builder focused on first- time buyers, fell 39 percent after the deadline for signing a contract to qualify for the federal tax credit expired. Unemployment and foreclosures make it difficult to forecast future sales, Jeffrey Mezger, the company’s chief executive officer, said Sept. 24.
“The housing market continues to face significant headwinds from high unemployment and foreclosures, which are impeding a broader recovery, and recent net order trends in the homebuilding industry have injected additional caution into our near-term outlook,” Mezger said in a statement.
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