U.S. Economy: Pending Sales of Existing Homes Unexpectedly Drop
Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.
The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.
The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.
“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”
Builder shares fell after the report, with the Standard & Poor’s Supercomposite Homebuilding Index declining 0.7 percent at 11:52 a.m. in New York. The broader S&P 500 climbed 0.1 percent to 1,119.74.
Factory orders rose 1.7 percent in January, boosted by a surge in commercial aircraft bookings, according to Commerce Department data that also showed less demand for computers and machinery.
Reports from the Labor Department today showed initial jobless claims fell from a three-month high, while productivity rose in the fourth quarter. Claims dropped 29,000 last week to 469,000.
Economists forecast a 1 percent gain in January pending home sales after a previously reported 1 percent rise a month earlier, according to the median of 40 projections in a Bloomberg News survey. Estimates ranged from a drop of 4.2 percent to an increase of 4 percent.
In November, the number of signed contracts dropped a record 14 percent. The Realtors group said February figures may be depressed as well following snowstorms in the Northeast and South.
“The abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” Lawrence Yun, the group’s chief economist, said in a statement. “We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June.”
The Realtors’ report showed declines in January pending sales in all four regions, led by a 13 percent slump in the West. Contract signings fell 8.9 percent in the Midwest, 8.7 percent in the Northeast and 2.1 percent in the South.
Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The pending sales data go back to January 2001, and the group began publishing the index in March 2005.
Reports last week showed the housing market may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decline a month earlier, according to Realtors group’s report Feb. 26. New-home sales slumped to an all-time low, the Commerce Department said Feb. 24.
President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners.
Among other concerns for the housing outlook, the Fed said it plans to end a program later this month to purchase mortgage- backed securities, which helped contain borrowing costs.
The rate on a 30-year fixed mortgage dropped to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate has hovered around 5 percent since then.
Foreclosures pose another threat. Foreclosure filings rose 15 percent in January compared with a year earlier and exceeded 300,000 for the 11th straight month, RealtyTrac Inc. said Feb. 11.
The housing market will “follow a similar pattern” to recovery as it did in the late 1980s and early 1990s, which both took “several years,” Toll Brothers Inc. Chief Executive Officer Robert Toll said in a statement Feb. 24.
The company, the largest U.S. luxury-home builder, said its orders almost doubled in the first quarter compared with a year earlier. It projected it will sell between 2,100 and 2,750 homes in fiscal 2010 at an average price of $540,000 to $560,000 each.