The number of contracts to buy U.S. previously owned homes unexpectedly rose in October as consumers rushed to take advantage of a tax credit that was due to expire.
The index of signed purchase agreements, or pending home sales, climbed 3.7 percent to 114.1 after increasing 6 percent in September, the National Association of Realtors said today in Washington. The ninth consecutive gain compares with the median forecast of a decline in a Bloomberg News survey of economists.
The administration’s incentive for first-time buyers, which last month was extended into next year and expanded to include current owners, will help housing emerge from its worst slump since the 1930s. A jobless rate at a 26-year high and mounting foreclosures represent challenges that the industry will find difficult to overcome.
“Housing is showing encouraging signs of recovery,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “A turnaround in the job market is a necessary condition for further improvement.”
Sales were projected to fall 1 percent after an originally reported gain of 6.1 percent in September, according to the median of 37 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 5 percent to a 6.5 percent increase.
A separate report today showed manufacturing in the U.S. expanded in November for a fourth consecutive month. The Institute for Supply Management’s manufacturing index fell to 53.6, lower than economists forecast, from October’s three-year high of 55.7, according to the Tempe, Arizona-based group. Readings above 50 signal expansion.
Stocks remained higher after the reports and Treasuries stayed lower. The Standard & Poor’s 500 Index increased 0.9 percent to 1,105.73 at 10:08 a.m. in New York. The yield on the 10-year Treasury note rose to 3.25 percent, from 3.2 percent late yesterday.
Pending home sales 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 Realtors group started publishing the index in March 2005, and data goes back to January 2001,
Compared with October 2008, pending sales were up 29 percent, the biggest year-over-year gain since records began.
President Barack Obama on Nov. 6 extended the $8,000 tax credit for first-time buyers until April 30 from Nov. 30, and expanded it to include some current owners.
“The tax credit is helping unleash pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future,” Lawrence Yun, the NAR’s chief economist, said in a statement. Yun also said sales may see a “temporary decline” because of the timing of the extension.
Three of four regions saw increases, led by a 20 percent jump in the Northeast. Pending sales climbed 12 percent in the Midwest and 5.4 percent in the South, today’s report showed. The West reported an 11 percent drop.
Federal Reserve officials are doing their part to sustain the housing rebound by pledging to keep the benchmark interest rate near zero for an “extended period,” according to their announcement last month. The average rate on a 30-year fixed mortgage was 4.78 percent last week, matching the last week in April as the lowest since Freddie Mac started keeping records in 1972.
New, Existing Homes
Demand is steadying, reports showed last week. Combined sales of new and existing homes rose in October to a 6.53 million annual rate, the highest level since June 2007.
Companies reporting continued signs of stabilization include Home Depot Inc., the largest U.S. home-improvement retailer, and smaller rival Lowe’s Cos.
Sales at stores open at least a year rose in 45 of 50 states last quarter, “with some of the biggest improvements coming in areas hardest hit by the housing downturn,” Lowe’s Chief Executive Officer Robert Niblock said on a conference call with analysts on Nov. 16. At the same time, “the broad based pressures of the macro environment are still evident in our sales.”
One constraint on demand is the weak labor market. The economy has lost 7.3 million jobs since the recession began in December 2007. The unemployment rate may exceed 10 percent through the first half of 2010, a Bloomberg survey showed.
Mounting joblessness and falling property values have spurred home-loan defaults. The number of houses worth less than the debt owed on them reached almost 10.7 million, or 23 percent of all mortgaged properties, at the end of the third quarter, according to a report last week from First American CoreLogic.
Source: Bloomberg | December 1, 2009