(Bloomberg News) The number of contracts to purchase previously owned U.S. homes fell in July for the first time in three months, a sign that lower prices and borrowing costs aren't luring in buyers.
The 1.3 percent decrease in the index of pending home sales followed a 2.4 percent gain the previous month, the National Association of Realtors said today in Washington. Economists forecast a 1 percent drop, according to the median of 40 estimates in a Bloomberg News survey.
Unemployment at 9.1 percent and the prospect of more foreclosures in the pipeline mean it may take years to clear the oversupply of houses, a sign the market is struggling to stabilize. The prospect of contract cancellations due to stricter underwriting standards and low appraisals means some signings may not translate into closings.
"Housing is still on the ropes," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note to clients. Shepherdson said he was concerned that "the chaos in the stock markets might have persuaded a greater proportion of buyers to walk away after signing contracts," leaving sales short of the level implied by the pending data.
Stocks climbed, extending the first weekly gain since July for the Standard & Poor's 500 Index. The gauge rose 1.9 percent to 1,199.31 at 10:22 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.27 percent from 2.19 percent late on Aug. 26.
Survey Results
Estimates for pending home sales ranged from a drop of 4.8 percent to an increase of 3.8 percent, according to the Bloomberg survey. Pending sales rose 10 percent from July 2010.
Another report showed consumer spending climbed more than forecast in July as Americans dipped into savings to buy cars and cool their homes, showing the biggest part of the economy is holding up.
Purchases rose 0.8 percent, the biggest gain since February, after a 0.1 percent decline the prior month, Commerce Department figures showed. Incomes grew 0.3 percent, pushing the savings rate to a four-month low.
Pending home sales fell in three of four regions, led by a 4.8 percent drop in the South. They increased 3.6 percent in the West.
Short of 'Healthy'
Today's report showed an 89.7 index level for pending home sales on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contracts in 2001, when record-keeping began, and coincides with "historically healthy" home-buying traffic, according to the NAR.
Another Realtors' report, on Aug. 18, showed sales of previously owned homes, which make up about 95 percent of the market, dropped in July to a nine-month low. Purchases decreased 3.5 percent to a 4.67 million annual rate, and 16 percent of real estate agents polled said they had at least one pending contract canceled last month.
NAR chief economist Lawrence Yun said in an Aug. 18 news conference that cancellations in the past two months were up from about 10 percent last year.
"The market can easily move into healthy expansion if mortgage underwriting standards return to normalcy," Yun said in a statement today. "Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process."
Fewer Applications
The number of mortgage applications fell in the week ended Aug. 19 as a measure of purchases slumped to the lowest level since December 1996, indicating demand remains weak this month, data from the Mortgage Bankers Association showed last week.
Pending sales track contract signings while previously owned sales reflect the closings a month or two later.
Existing-home sales have fallen since reaching an annual peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that led to an 18-month recession. Purchases fell to a 13-year low of 4.91 million last year.
Federal Reserve Chairman Ben S. Bernanke, speaking last week in Jackson Hole, Wyoming, said the housing market was hampered by "an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines."
Foreclosure Sales
U.S. homes nearing foreclosure accounted for 12 percent of total sales in the second quarter as banks agreed to more transactions at prices below the outstanding mortgage balance, RealtyTrac Inc. said.
The proportion of sales of homes in default or scheduled for auction rose from 10 percent a year earlier and was little changed from the first quarter, the Irvine, California-based information company said in an Aug. 25 report.
"The U.S. housing market remains under stress," Frank Blake, chairman and chief executive officer at Home Depot Inc., said on an Aug. 16 teleconference with analysts. "We do not expect any meaningful improvement in the housing market for the back half of 2011, and events here and across the globe would suggest that there are more risks to the downside than the upside on GDP growth."