US pending home sales slump worse than forecast

Source : Business Times - 5 Mar 2009

Housing crisis unlikely to bottom out in first half ‘09

Fewer Americans than forecast signed contracts to buy previously owned homes in January as the housing slump deepened at the start of its fourth year.

The index of pending home resales fell 7.7 per cent after a 4.8 per cent gain in December, the National Association of Realtors (NAR) said on Tuesday.

A lack of credit and record foreclosures that are pushing property values even lower may keep prospective buyers out of the market for much of 2009.

President Barack Obama has pledged to keep more Americans in their homes and create jobs, and Federal Reserve chairman Ben Bernanke on Tuesday said policy-makers may need to expand aid to the banking system.

‘There are just too many headwinds for homebuyers - tight credit, mounting job losses and fears of further price declines,’ said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ‘The housing market is showing no sign of a bottom. This could be the story for the first half of this year.’

Economists forecast a 3.5 per cent drop in pending sales after an originally reported gain of 6.3 per cent in December, according to the median forecast of 32 economists in a Bloomberg News survey. Estimates ranged from declines of 0.8 per cent to 5 per cent.

Policy-makers may need to boost aid to banks beyond the US$700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits, Mr Bernanke said in the text of testimony before the Senate on Tuesday.

The Fed chairman last week warned the recession may last into 2010 unless policy-makers can stabilise the financial system.

Stocks dropped for a fifth day following Mr Bernanke’s comments that the banking system still hadn’t stabilised. The Standard & Poor’s 500 index fell 0.6 per cent to 696.33, the lowest close since October 1996. The yield on the benchmark 10-year note rose to 2.88 per cent at 4.40 pm in New York from 2.86 per cent late on Monday.

Pending resales 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 index was first published in March 2005 and included data going back to January 2001.

The group’s index decreased to 80.4 in January, the lowest level since records began.

Three of four regions dropped, led by a 13 per cent slump in the Northeast and a 12 per cent slide in the South.

Pending sales increased 2.4 per cent in the West.

Compared with January 2008, pending sales decreased 6.4 per cent.

Sales of previously owned homes, which account for about 90 per cent of the market, fell in January to the lowest level since 1997, according to the Realtors group. New-home purchases, which make up the rest, plunged to the lowest level since records began in 1963, Commerce Department figures showed.

The median price for existing and new houses decreased in January from a year ago, the reports showed.

Falling prices and lower borrowing costs have brought more homes within reach of buyers. The NAR’s affordability index jumped to 166.8 in January, the highest level since records began in 1970.

‘Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales,’ Lawrence Yun, the group’s chief economist, said. ‘We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions.’

The S&P’s 500 Supercomposite Homebuilding Index fell 20 per cent in the first two months of this year as sales plunged. The index dropped 76 per cent over the last three years. Pulte Homes Inc, the largest US homebuilder, last month reported its ninth consecutive quarterly loss.

Housing-related companies are also struggling. Home Depot Inc, the largest home-improvement retailer, had a fourth-quarter loss, closed its Expo design unit and is cutting about 7,000 jobs.

‘The home improvement market in 2009 will remain just as challenging as 2008,’ chief executive officer Frank Blake said on Feb 24.

The economy shrank at a 6.2 per cent annual rate in the fourth quarter, the most since 1982, revised government figures showed last week. Home construction contracted at a 22 per cent pace following a 16 per cent decline in the prior quarter.

Policy-makers are counting on a series of steps to stem the deterioration. Mr Obama last month introduced a plan to help as many as nine million people restructure mortgages to avoid foreclosures.

The Treasury Department is doubling the amount of stock purchases of Fannie Mae and Freddie Mac, the mortgage-finance companies now under government control.