Posted on Monday, April 4, 2011
A gain in the number of Americans signing contracts to buy previously owned homes in February failed to make up for the ground lost a month earlier, a sign the U.S. housing market has yet to join the economic recovery.
The index of pending home resales increased 2.1 percent after a 2.8 percent drop the prior month, figures from the National Association of Realtors showed today in Washington. The median estimate in a Bloomberg News survey of economists called for little change.
Foreclosures are augmenting the surplus of distressed properties and causing prices to fall, leaving some Americans with bigger mortgages than their homes are worth. Faster job growth may be required to stabilize residential real estate, the weakest link in the economy.
“The foreclosure overhang is oppressing the industry,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected sales would climb 1.8 percent. “All this is keeping a lid on the market even though affordability is terrific. This will be another sad year.”
Estimates for pending home sales ranged from a drop of 3.8 percent to an increase of 3.5 percent, according to a Bloomberg survey of 33 economists.
Another report today showed consumer spending rose more than forecast in February as incomes climbed, helping to bolster the expansion in the world’s largest economy.
I. Consumer Spending
Purchases increased 0.7 percent, the most since October, after advancing 0.3 percent the prior month, according to figures from the Commerce Department. Incomes increased 0.3 percent, less than projected, and the Federal Reserve’s preferred measure of inflation accelerated.
Stocks rose after the reports and Treasury securities dropped. The Standard & Poor’s 500 Index increased 0.4 percent to 1,319.18 at 10:27 a.m. in New York. The yield on the benchmark 10-year Treasury note, which moves inversely to prices, climbed to 3.46 percent from 3.44 percent late on March 25.
From February 2010, pending home sales were down 9.3 percent.
Three of four regions showed an increase in contract signings from a month earlier, today’s report showed, led by a 7 percent gain in the West. Pending sales fell 11 percent in the Northeast, which may reflect the influence of “unusually bad winter weather,” Lawrence Yun, the group’s chief economist, said in a statement.
II. February Slump
Sales of previously owned homes, which now make up more than 95 percent of the market, dropped more than forecast last month, sending prices to a nine-year low, the agents’ group reported last week. Purchases decreased 9.6 percent to a 4.88 million annual rate. The median price fell 5.2 percent from a year earlier, erasing all gains since February 2002.
“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability,” Yun also wrote.
New-home purchases unexpectedly declined in February to the slowest pace on record, and prices dropped to the lowest level since December 2003, a Commerce Department report showed last week. Sales decreased 17 percent to a 250,000 annual pace. The median price fell 8.9 percent from February 2010.
III. Leading Indicator
Like the statistics on new-home purchases, pending home sales are considered a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later.
Housing, the industry that precipitated the recent recession, is having trouble gaining strength after the government’s homebuyer tax credit expired.
Bank of America Corp. Chief Executive Officer Brian T. Moynihan said the housing slump is the biggest challenge limiting the U.S. economic recovery.
“The problem of delinquent mortgages and falling home values is the most stubborn, entrenched and damaging economic problem our country faces today,” Moynihan said March 23 in Detroit, at a meeting of the city’s Economic Club.
With unemployment lingering near 9 percent and some underlying home values worth less than the mortgages on the properties, foreclosure filings may climb about 20 percent in 2011, reaching a peak for the housing crisis, RealtyTrac said earlier this year.
By Alex Kowalski , BLOOMBERG