Pending U.S. Home Sales Decline 1.2% as Lower Prices Fail to Stoke Demand
The number of contracts to purchase previously owned U.S. homes fell in August, a sign that lower prices and borrowing costs are doing little to stoke demand.
The 1.2 percent decrease in the index of pending home sales followed a 1.3 percent drop the previous month, the National Association of Realtors said today in Washington. Economists forecast a 2 percent drop, according to the median of 43 estimates in a Bloomberg News survey.
Unemployment at 9.1 percent and the acceleration of foreclosure processing indicate it may take years to clear the oversupply of houses, an obstacle for stabilizing the market. The prospect of contract cancellations due to stricter underwriting standards and low appraisals means some signings may not translate into closings.
“With the job market also foundering, there is every reason to think more buyers opted for the sidelines,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “The fundamentals also point to a difficult month for sales, even though mortgage rates have come down appreciably.”
Estimates for pending home sales ranged from a drop of 4 percent to an increase of 3.7 percent, according to the Bloomberg survey. Pending sales rose 13.1 percent from August 2010.
A Labor Department report today showed jobless claims fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal variations. Applications for benefits dropped by 37,000 to 391,000, the fewest since April. An agency official said the data probably reflected a “slight mistiming” in the seasonal factors used to modify the figures.
The economy grew at a 1.3 percent annual rate in the second quarter, faster than last month’s estimate and helped by exports and spending on services.
The revised rise in gross domestic product compares with a 1 percent gain previously calculated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg was 1.2 percent, following a 0.4 percent increase in the first three months of the year.
Consumer confidence slumped last week to the second-lowest level on record as Americans grew more concerned with their financial situation and the buying climate eroded.
The Bloomberg Consumer Comfort Index dropped to minus 53 in the period ended Sept. 25 from minus 52.1 the prior week. Similar readings were reached three times in first half of 2009 and surpassed only by all-time lows of minus 54 in November 2008 and again in January 2009.
Pending home sales fell in three of four regions, led by a 5.8 percent decrease in the Northeast. They dropped 3.7 percent in the Midwest and 2.4 percent in West. In the South, they rose 2.6 percent.
“The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene,” NAR chief economist Lawrence Yun said in a statement today. “Broadly speaking, contract signing activity has been holding in a narrow range for many months.”
Today’s report showed an 88.6 index level for pending home sales on a seasonally adjusted basis. 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 Sept. 21, showed sales of previously owned homes, which make up about 95 percent of the market, jumped in August by the most this year. Purchases increased 7.7 percent to a 5.03 million annual rate, and 18 percent of real estate agents polled said they had at least one pending contract canceled last month, up from 16 percent in July.
The cancellations reflected mortgage applications that were refused or because appraised home values were coming in below the sales price, NAR said last week.
Pending sales track contract signings while previously owned sales reflect the closings a month or two later.
The number of mortgage applications rose in the week ended Sept. 23 as near record-low borrowing costs boosted refinancing, data from the Mortgage Bankers Association showed last week.
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 fell to a 13-year low of 4.91 million last year.
Default notices sent to delinquent U.S. homeowners surged 33 percent in August from the previous month, a sign that lenders are speeding up the foreclosure process after almost a year of delays, according to RealtyTrac Inc., the Irvine, California-based data seller said in a Sept. 15 report.
Federal Reserve policy makers last week announced more steps to spur growth and revive the residential real estate industry, which since 1982 has aided every economic recovery except the current one that began in June 2009.
KB Home (KBH), the Los Angeles-based homebuilder that focuses on first-time buyers, expects to have a profit in the fourth quarter, Chief Executive Officer Jeffrey Mezger said in a Sept. 23 conference call with analysts. The builder has cut costs and added communities in California and Texas, where it expects demand to improve. The market for new houses has been weakened by a decline in credit availability, stalled job growth and competition from cheaper existing homes.
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