Pending U.S. Home Resales Surge the Most Since 2001
June 2 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.
The gain in the index of signed purchase agreements, or pending home resales, was the biggest in more than seven years and followed a 3.2 percent increase in March, the National Association of Realtors said today in Washington. The April reading was up 3.2 percent from the same month a year earlier.
Foreclosure-driven declines in values and tax incentives may put more homes within reach of first-time buyers, helping to stabilize the market and stemming the biggest drag on economic growth. Still, with mortgage rates no longer dropping and unemployment climbing, the real-estate industry may flounder near recent lows for months before a sustained recovery.
“The market is crawling back and maybe the turn is here,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, whose projected 4 percent gain was the highest in a Bloomberg survey. “Foreclosures are moving through the system and that is a fundamental part of the process of restoring equilibrium in the housing market.”
Pending resales are considered a leading indicator because they track contract signings. NAR’s existing-home sales report tallies closings, which typically occur a month or two later. The group, whose pending data goes back to January 2001, started publishing the index in March 2005.
Still, the gains in pending sales have been larger than actual home resales in recent months, perhaps reflecting the influence of foreclosures. Sales of distressed properties are taking longer to close because they require lender approval, Lawrence Yun, chief economist at the Realtors’ group, said in a statement. Moreover, some of these contracts fall through before a transaction is completed, he said.
“The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline,” Yun said.
Economists forecast the index would rise 0.5 percent in April, according to the median of 32 projections in a Bloomberg News survey. Estimates ranged from a 2 percent drop to an increase of 4 percent.
Builder shares rallied on signs the market is stabilizing. The Standard & Poor’s Homebuilder Supercomposite index was up 1.3 percent to 218.24 at 10:36 a.m. in New York. The S&P 500 index climbed 0.4 percent to 946.41, while Treasury securities were little changed.
Three of four regions saw an increase in pending sales, today’s report showed, led by a 33 percent jump in the Northeast and a 9.8 percent gain in the Midwest. Pending resales rose 1.8 percent in the West and fell 0.2 percent in the South.
The agents’ association reported last week that home resales increased 2.9 percent in April, buttressing the case that the industry’s slump, now in its fourth year, would end in 2009. The median price dropped 15 percent from a year earlier, the second-biggest decline on record.
Sales gains have been most pronounced in areas such as California and Florida where foreclosures have surged, indicating the drop in prices is stimulating demand.
In addition, the Obama administration’s economic stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.
The Realtors group’s affordability index, which takes into account home values, household incomes and mortgage rates, reached a record high of 176.9 in January. The index was at 174.8 in April, the second-highest ever. Readings greater than 100 indicate a family earning the median income can afford a median-priced home at current borrowing costs.
Today’s report “reflects first-time homebuyers and investors taking advantage of foreclosures,” Coldwell Banker Real Estate LLC Chief Executive Officer James Gillespie said in an interview with Bloomberg Television. “But to get the market really moving we need to get the move-up buyers” for a true recovery to take hold, he said.
Coldwell Banker is lobbying Congress for a $15,000 tax credit for all homebuyers, not just first-time purchasers.
Still, an improving economic outlook has pushed up borrowing costs, raising concern the real-estate industry will not rebound.
The average rate on a 30-year fixed mortgage climbed to 4.91 percent last week, according to figures from Freddie Mac. The rate had reached a record-low 4.78 percent in April.
“Home-purchase activity could wallow at moribund levels,” said Scott Anderson, a senior economist at Wells Fargo & Co. in New York. The emerging “green shoots” of recovery may be stamped out, “forcing us to yet again downgrade our outlook for the economy,” he wrote in a May 29 note to clients.
A weak job market is another reason economists say any rebound in housing would be slow to develop. The unemployment rate, which reached a 25-year high of 8.9 percent in April, may climb to almost 10 percent by the end of 2009, according to the median forecast of economists surveyed by Bloomberg last month.
Rising defaults and foreclosures are likely to also keep property values under pressure for months, making buying a home a risky proposition. The U.S. mortgage delinquency rate jumped to 9.12 percent in the first quarter, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said last week. Both figures were the highest in records going back to 1972.