Pending sales of pre-owned US homes disappoint with 0.1 per cent rise

Rise of 0.1 per cent in pending-sales indicator seen as further evidence of a faltering recovery

PUBLISHED : Wednesday, 05 March, 2014, 5:16am
UPDATED : Wednesday, 05 March, 2014, 5:16am

Contracts to purchase previously owned US homes rose less than forecast in January, adding to signs housing was weakening early in the new year.

The index of pending home sales climbed 0.1 per cent after a 5.8 per cent drop in December that was smaller than previously estimated, figures from the National Association of Realtors (NAR) showed last week. The median forecast of 41 economists surveyed by Bloomberg called for sales to rise 1.8 per cent.

Recent data indicates adverse weather was one reason for depressed housing activity. However, faster gains in hiring and consumer confidence are needed to sustain the housing recovery. Home construction fell last month amid harsh winter weather, which combined with a lack of supply, strict lending rules and waning affordability to also reduce existing-home sales - which are tabulated when a contract closes.

"There's a broad trend of cooling in the housing market," said Yelena Shulyatyeva, an economist at BNP Paribas in New York. BNP was the best forecaster of pending home sales the past two years, according to data compiled by Bloomberg.

"An increase in mortgage rates and home prices has hurt those who want to buy." The outlook is "just more of the same, for housing and for the economy".

Estimates in the Bloomberg survey ranged from a drop of 5 per cent to a rise of 5 per cent. The realtors' group revised December data from a previously reported decline of 8.7 per cent.

Two of four regions, the northeast and the South, saw an increase from the previous month, the report showed.

"Limited inventory is also playing a role, especially in the West, while credit remains tight and affordability isn't as favourable as it was a year ago," said Lawrence Yun, NAR economist.

Contract signings decreased 9.1 per cent from a year earlier on an unadjusted basis, after a 6.1 per cent drop in the prior 12-month period.

Economists consider pending home sales a leading indicator because they track contract signings. Existing-home sales are tabulated when a contract closes, typically a month or two later.

Purchases of previously owned houses fell 5.1 per cent to a 4.62 million annual rate last month, the fewest since July 2012, the realtors group reported.

Home construction fell 16 per cent to an 880,000 annualised rate in January, the biggest plunge since 2011, according to the US Commerce Department.

The 30-year fixed mortgage rate averaged 4.37 per cent in the week ending February 27, up from 3.51 per cent around the same time a year ago, according to Freddie Mac.