Pending Home Sales in U.S. Increase Less Than Forecast

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The number of contracts to buy existing homes rose less than forecast in September, signaling demand will probably plateau heading into the end of 2014.

The pending home sales index increased 0.3 percent after dropping 1 percent in August, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for a 1 percent gain.

Home resales have yet to regain last year’s peak as still-tight credit and low inventories remain hurdles for the industry, which means residential real estate will make a limited contribution to the expansion. The recent drop in mortgage rates and pickup in hiring will probably help underpin demand, even as first-time buyers struggle to enter the market.

Housing “just doesn’t look like it has that stamina to be a significant driver” for growth, said Kim Fraser Chase, an economist at BBVA Research in Houston, who projected a 0.5 percent rise in sales, among the closest in the Bloomberg survey. The housing rebound will probably be “just enough to get by, but not spectacular by any means.”

Stocks were little changed, following the biggest weekly rally since January 2013, as energy producers led losses after oil dipped below $80 a barrel while telephone and consumer-staples shares rose. The Standard & Poor’s 500 Index declined 0.2 percent to 1,961.63 at the close in New York.

Survey Results

Estimates in the Bloomberg survey of 41 economists forecasting pending home sales ranged from a decline of 1.5 percent to an advance of 2.5 percent.

Pending sales rose in two of four regions from the prior month, with the South up 1.4 percent and the Northeast advancing 1.2 percent. They declined 1.2 percent in the Midwest and 0.8 percent in the West.

Contracts climbed 3 percent in the 12 months ending in September after a 4.1 percent annual decline in August, the NAR report showed. Last month marked the first year-over-year increase since September 2013.

Economists consider pending sales a leading indicator because they track purchase contracts. Existing-home sales are tabulated when a deal closes, usually a month or two later.

Those resales rose last month to a 5.17 million annual rate, the highest level in a year, NAR data showed last week. Demand topped out at a 5.38 million pace in July 2013, an almost four-year high.

The rebound was cut short last year after Federal Reserve policy makers began discussing the possibility that the amount of monthly bond purchases, or quantitative easing, would diminish. The discussion of so-called tapering caused mortgage rates to jump.

Fed Policy

Fed officials meet over the next two days to decide how to proceed. Policy makers will probably bring an end to the bond-buying program while keeping their benchmark interest rate near zero, according to the median forecast of economists surveyed by Bloomberg ahead of the statement on Oct. 29.

Borrowing costs have plunged over the past few weeks as concern over slowing global growth pushed investors into the safety of Treasury securities, causing yields to drop on the benchmarks used to calculate home-lending costs.

The average rate on a 30-year, fixed mortgage fell to 3.92 percent in the week ended Oct. 23, the lowest since June 2013, according to Freddie Mac data. The rate has dropped by 0.27 percentage point over the past three weeks.

“The current spectacularly low mortgage rates should help more buyers reach the market,” NAR chief economist Lawrence Yun said in a statement.

Payroll Gains

Payroll gains on pace for their best year since 1999 also are bolstering potential home buyers. Employers have added an average 227,000 jobs per month through September. The unemployment rate has fallen to 5.9 percent from 6.7 percent at the end of last year. The Labor Department will release October figures Nov. 7.

A stronger pickup in wages would help keep housing within reach for more Americans even as credit standards remain tight. Average hourly earnings rose 2 percent in September from a year earlier, compared with a 3.1 percent advance in December 2007, as the past recession was starting.

Demand for rental housing is helping prop up construction. Housing starts climbed 6.3 percent in September to a 1.02 million annualized rate, supported by a bigger increase in multifamily projects than for single-family properties, figures from the Commerce Department showed last week.

Builder Outlook

Homebuilders such as Westlake Village, California-based Ryland Group Inc. are pointing to economic issues that are supporting the industry, while acknowledging the pace of improvement has been modest.

The industry is seeing advances “thanks to a strengthening employment picture, a favorable affordability dynamic and a low level of housing inventory,” Chief Executive Officer Larry Nicholson said on an Oct. 23 earnings call. At the same time, the housing market “still has a long way to go before returning to long-term norms.”

(A previous version of this story corrected the year-to-year gain to 3 percent.)

(Updates with closing stock prices in fifth paragraph.)
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