Pending Sales of Existing U.S. Homes Fell 1.5% in December

Pending Sales of Existing U.S. Homes Fell 1.5% in December

Feb. 7 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.

The National Association of Realtors' index of signed purchase agreements decreased 1.5 percent to 85.9, the group said today. The drop follows a revised 3 percent decline for November that was larger than previously reported.

Today's report reinforces concern that the housing recession will linger as foreclosures add to a glut of unsold homes. The housing slump is weighing on the job market and consumer spending, putting pressure on Federal Reserve policy makers to lowering interest rates further to keep the economy out of a recession.

``The housing outlook has deteriorated significantly and I don't see a bottom on sales and starts until the middle of the year at the earliest,'' Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``And our outlook on home prices has gotten worse.''

Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

Forecast Lowered

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from a January forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said today.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

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 Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

New-Home Sales

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New home sales also are recorded when a contract is signed.

Homebuilder Pulte Homes Inc. said Jan. 30 that it had its fifth consecutive quarterly loss in the fourth quarter because of falling sales. Chief Executive Officer Richard Dugas forecast there will be a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

``Sales levels are still depressed as compared to prior periods,'' even though the company has lowered prices, Dugas said on a conference call on Jan. 31.

Builders have little incentive to start new projects until they see inventories of unsold homes coming down. Both new and existing homes had a 9.6 months supply on the market in December.

Service Industries Contract

The Realtors group has said inventories of existing homes need to decline to a five to six months' supply to stabilize the market. The elevated inventories also suggest prices may fall further and the housing slump will continue in coming months.

The decline in housing is taking a toll on other sectors of the economy. The Institute for Supply Management said on Feb. 5 that its index of non-manufacturing businesses contracted at the fastest pace since the 2001 recession.

Earlier today, the government figures showed the number of Americans filing first-time claims for unemployment benefits fell less than forecast. Initial jobless claims decreased by 22,000 to 356,000 in the week ended Feb. 2, from a two-year high of 378,000 a week earlier, the Labor Department said today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decline to 342,000.

``We have obviously experienced a significant decline in the growth of overall economic activity since August, with much of the decline occurring in the last two months,'' Federal Reserve Bank of Richmond President Jeffrey Lacker said Feb. 5 to banking leaders in Charleston, West Virginia. He also said he sees ``the possibility of a mild recession'' and further reductions in interest rates ``may be warranted.''

The Federal Open Market Committee lowered the benchmark lending rate by a half point to 3 percent on Jan. 30, following a three-quarter-point inter-meeting cut Jan. 22. The combined 1.25 percentage point reduction in nine days is the fastest decline in the federal funds rate in the 20 years it has been used as the central policy tool.

The cuts in the benchmark interest rate may help bring down mortgage rates down further, economists said. The rate on a 30- year fixed mortgage fell to 5.48 percent the week ended Jan. 24, the lowest level in almost four years.

BLOOMBERG