Pending Sales of Existing Homes Slump by Most in Three Years
Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market.
The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.
Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week.
“We’ll be in this weakness for a little bit, maybe even going into the fourth quarter,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, the second-best forecaster of pending home sales over the past two years, according to data compiled by Bloomberg. “This is a clear signal to the Fed as to what happens when you try to play with nascent housing recovery. The minutes indicated they were really concerned about it.”
Another report today showed factory production rose less than forecast in September, indicating manufacturing cooled heading into the budget battle that partially closed the federal government this month. Output at factories rose 0.1 percent after a revised 0.5 percent gain in August that was smaller than initially estimated, according to figures from the Federal Reserve. The median forecast of economists in a Bloomberg survey called for a 0.3 percent September gain.
Total industrial production, which also includes output by mines and utilities, advanced 0.6 percent as higher temperatures drove up electricity use.
Stocks were little changed after the pending sales report, erasing earlier gains. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,761.32 at 10:32 a.m. in New York. The S&P Supercomposite Homebuilding Index dropped 0.7 percent.
The median forecast of 39 economists surveyed by Bloomberg projected the pending home sales gauge would be unchanged from the month before. Estimates (USPHTMOM) ranged from a 2.8 percent decline to a 3.5 percent increase.
Last month’s drop was the biggest since a 28.9 percent plunge in May 2010, when the extension of a government tax credit expired.
The Realtors’ report showed purchases rose 1.1 percent from September 2012 on an unadjusted basis, the smallest advance in more than two years.
The pending sales index was 101.6 on a seasonally-adjusted basis, the weakest since December. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the NAR.
“This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014,” NAR Chief Economist Lawrence Yun said in a statement. “Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year.”
All four regions showed a decrease from a month earlier, led by a 9.6 percent drop in the Northeast and a 9 percent decline in the West.
Economists consider pending home sales a leading indicator because they track purchase contracts. Existing home sales are tabulated when a contract closes, usually a month or two later.
Last week, the Realtors’ group said existing home sales fell in September for the first time in three months as higher prices and mortgage rates curbed demand. Purchases (ETSLTOTL) dropped 1.9 percent to a 5.29 million annual rate from a revised 5.39 million pace in August that was the strongest since 2009.
The median price of an existing home increased to $199,200 from $178,300 in September 2012, the group reported last week.
The NAR forecasts sales of existing homes to be little changed in 2014 at 5.18 million compared with 5.16 million this year.
The average rate for a 30-year fixed mortgage was 4.58 percent in the week ended Aug. 22, the highest level since July 2011. It’s since fallen, averaging 4.13 percent for the week ended Oct. 24, according to Freddie Mac (FMCC) in McLean, Virginia.
Robert Schottenstein, chairman and chief executive officer of M/I Homes Inc. (MHO), said the “fairly sudden and meaningful” jump in rates hurt sales at the Columbus, Ohio, builder. The government shutdown this month also put a dent in consumer confidence, which could discourage buyers further, he said.
“The net effect of all of this is that sales have slowed,” Schottenstein said on an Oct. 24 earnings call. “Traffic, both in our models and on the Internet, remains very good. But many consumers are clearly more cautious and not moving as quickly when it comes to making a decision to buy.”
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