Pending Sales of U.S. Houses Probably Decreased in January
The number of Americans signing contracts to buy previously owned homes fell in January for a third month, signaling no end in sight to the housing slump, economists said before a report today.
The National Association of Realtors' index of signed purchase agreements dropped 1 percent to 85, the lowest level since the Chicago-based group began keeping records in 2001, according to the median estimate of 27 economists surveyed by Bloomberg News.
The housing recession, into its third year, will deepen as a glut of unsold properties causes prices to keep dropping and prompts builders to cancel projects. The report underscores why Federal Reserve Chairman Ben S. Bernanke has indicated the central bank is ready to reduce interest rates again and urged lenders this week to lower the principal on some troubled loans.
“The imbalance between housing demand and housing supply has continued to grow,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. “Potential buyers remain hesitant, given expectations of continued price declines and recession fears.''
Economists' projections ranged from a drop of 3 percent to a 1.5 percent increase. The National Association of Realtors' report is due in Washington at 10 a.m.
The group forecasts existing-home sales this year will fall 4.8 percent to 5.38 million from 5.65 million in 2007. Builders will break ground on 1.08 million houses, down from 1.35 million last year, the Realtors also forecast.
Leading Indicator
The agents' group began reporting pending home resales in March 2005 and has supplied historical data back to January 2001. The gauge is considered a leading indicator because it tracks contract signings, while the sales report tracks closings, which typically occur a month or two later cash advance loans.
Purchases of existing homes fell 0.4 percent in January to a 4.89 million rate, 33 percent below the peak reached in September 2005, the Realtors' group said last month.
Nationally, home prices fell 9 percent in the fourth quarter from a year earlier, the biggest decline in 20 years of record-keeping, according to the S&P/Case-Shiller home-price index. Economists at Lehman Brothers Holdings Inc. forecast prices will decline an additional 10 percent.
Falling prices are contributing to the drop in sales as would-be buyers leave the market in anticipation of even bigger decreases. The drop in property values also leads to an increase in foreclosures as owners walk away from mortgages that are larger than the value of their homes.
More Foreclosures
“Delinquencies and foreclosures likely will continue to rise for a while longer,'' Bernanke told bankers this week in Orlando, Florida. The number of properties going into foreclosure will probably surpass last year's estimated 1.5 million, he said.
Bernanke urged lenders and mortgage-service companies to forgive portions of outstanding loans that are in danger of defaulting to reflect the drop in values.
Declining home equity and stricter lending rules may also be part of the reason why consumer spending is weakening. The slowdown is pushing the economy closer to recession.
Builders are advocating even more aggressive government action to revive the industry. Congress should create tax breaks for buyers of new homes, National Association of Home Builders Chief Executive Officer Jerry Howard said this week in a conference call.
Filed under: business by Finance Boss