U.S. Economy: Pending Home Sales Unexpectedly Gain

U.S. Economy: Pending Home Sales Unexpectedly Gain (Update1)

By Courtney Schlisserman

Dec. 10 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes unexpectedly rose for a second month in October, providing a rare piece of good news for the housing industry.

The National Association of Realtors' index of pending sales climbed 0.6 percent, following a revised 1.4 percent increase in September that was bigger than initially estimated, the group said today in Washington.

``We're not likely to see any further collapse at this point,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who had forecast a gain. ``I'm not optimistic about the outlook for the housing market, but we're scraping bottom in the fourth quarter.''

The gains in September and October follow the biggest back- to-back drop since records began in 2001. The Federal Reserve is likely to cut its benchmark interest rate tomorrow to prevent the housing recession and higher borrowing costs from weakening the broader economy, economists said.

Economists forecast the index of signed contracts for existing homes would fall 1 percent, according to the median of 27 projections in a Bloomberg News survey.

``The worst part of the credit crunch has already been accounted for in the data,'' Lawrence Yun, chief economist at the Realtors group, told reporters.

Compared with a year earlier, the index was down 18 percent.

Leading Measure

U.S. Treasury securities fell and stock prices extended gains following the report. The yield on the benchmark 10-year note rose to 4.16 percent at 11:04 a.m. in New York, compared with 4.11 percent late Friday. The Standard & Poor's 500 index was up 0.9 percent and the S&P Supercomposite homebuilder index rose 4 percent.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The association's existing- home purchases report tracks closings, which typically occur a month or two later.

The organization forecast 5.697 million homes will be sold in 2008, an improvement from last month's estimate and little changed from a projected 5.67 million this year. Purchases of new homes will fall to 693,000 from 788,000 this year.

Price Forecast

The median price of an existing home will probably rise 0.3 percent in 2008, after falling 1.9 percent this year which would be the first decline since the Great Depression.

Today's report showed pending resales rose in two out of four regions. Purchases increased 16 percent in the Northeast and 8.4 percent in the West, which probably reflected a pickup in loans insured by the Federal Housing Administration as subprime lending collapsed, said Yun. Purchases dropped 7.8 percent in the South and 1.4 percent in the Midwest.

The inventory of unsold properties is surging as demand slumps and rising foreclosures bring more houses on the market.

President George W. Bush unveiled a plan last week to freeze rates on some subprime mortgages to try to prevent foreclosures from undoing the six-year economic expansion. The accord between the administration, bank regulators and lenders will fix rates on some loans for five years. The plan is aimed at borrowers who will fall behind once initially low rates reset to higher levels through July 2010.

Delinquencies

The number of Americans who fell behind on their mortgage payments rose in the third quarter to a 20-year high, the Mortgage Bankers Association said last week. The share of all home loans with payments more than 30 days late rose to a seasonally adjusted 5.59 percent.

Federal Reserve Governor Randall Kroszner said on Dec. 6 that the central bank expects higher delinquency rates on subprime mortgages as one out of 10 borrowers faces an interest- rate reset each quarter over the next year. While typically borrowers would refinance their loans to avoid the higher reset, falling home prices and increased lending restrictions have ``reduced the viability'' of that option, he said.

Fed policy makers are scheduled to meet tomorrow to decide on the level of interest rates. Futures show traders put the probability of a Fed rate cut at 100 percent. The odds favor a quarter-point reduction.

Builders of more expensive houses are even getting hurt by the slump in subprime lending.

Toll Brothers Inc., the largest U.S. luxury-home builder, reported its first quarterly loss in 21 years on Dec. 6. Fiscal 2007 was the most challenging in the 40 years the company has been in business, Chief Executive Officer Robert Toll said.

``The biggest hurdle for our clients right now is their concern about their ability to sell their old home,'' Toll said in a statement. The housing decline may be ``our toughest test yet,'' he said.

BLOOMBERG