Pending Home Resales Fell More Than Forecast
By Bob Willis
The number of Americans signing contracts to buy previously owned homes declined more than forecast in February, indicating no sign of a bottom in the U.S. real-estate recession that is entering its third year.
The National Association of Realtors' index of signed purchase agreements decreased 1.9 percent to 84.6, the lowest reading since records began in 2001, the group said today. The drop follows a revised 0.3 percent increase in January.
The continued slump in sales may spur further declines in property values, worsening the slide in mortgage securities that has already caused $232 billion of asset writedowns and credit losses. Traders anticipate the Federal Reserve will have to lower interest rates by at least a quarter point this month to cushion the economy's downturn.
``Looking for a bottom in housing is a little premature,'' Drew Matus, senior economist at Lehman Brothers Holdings Inc. in New York, said in a Bloomberg Television interview. ``Prices are likely to come down and we expect that to continue for some time.''
Economists had forecast the index would fall 1 percent from an unchanged reading previously reported for January, according to the median of 29 estimates in a Bloomberg News survey. Projections ranged from a decline of 1.5 percent to a 1.5 percent gain. Compared with a year earlier, the measure was down 21 percent.
The Fed is due to release minutes of its March 18 policy meeting at 2 p.m. In the first 11 weeks of this year, the central bank cut the benchmark lending rate 2 percentage points, the fastest drop in two decades. Analysts will be eager to see how officials viewed the unraveling of money markets that prompted them to pass new liquidity backstops.
Former Fed Chairman Alan Greenspan said today the drop in U.S. home prices will probably end ``well before'' early next year as the number of houses on the market diminishes, aiding an economic rebound.
The International Monetary Fund today said financial losses stemming from the mortgage crisis may approach $1 trillion, citing a ``collective failure'' to predict the breadth of the crisis.
The Realtors forecast existing-home sales in 2008 would fall to 5.39 million compared with 5.65 million last year. Purchases of new homes will decline to 576,000 from 775,000 in 2007, the group said today.
Pending resales dropped in three of four regions, led by a 9.8 percent decline in the West. Purchases fell 5.5 percent in the South and 3.7 percent in the Midwest. Pending sales increased 3.2 percent in the Northeast.
The pending figures are considered a leading indicator of resales because they track contract signings. The purchase data, due later this month, reflects closings, which typically occur one or two months later.
Sales of existing homes unexpectedly rose in February from a nine-year low, the Realtors group said March 24. Purchases increased 2.9 percent to an annual rate of 5.03 million. Sales of existing homes are down 31 percent from their September 2005 peak, while inventories are at a 9.6-month supply. The group has said a five- to six-month supply reflects a balanced market.
The housing slump has hurt the economy in various ways. Declines in residential construction have reduced gross domestic product since early 2006 and now falling home prices are curbing consumer spending. The drop in values reduces household wealth and limits the amount of equity owners can tap to boost spending.
Spillover from the housing slump is affecting other parts of the economy, costing jobs and undermining output, wages and sales. Fed Chairman Ben S. Bernanke last week for the first time said the economy may be facing a recession.
The Fed chief, in testimony to Congress, reiterated a pledge to act ``as needed'' to cushion the slowdown. Investors are betting the central bank will lower the benchmark interest rate again later this month, adding to the 3 percentage points of reductions already carried out since September.
Demand for houses continues to languish as defaults on subprime mortgages and rising foreclosures push even more properties onto the market. Banks selling foreclosed homes and builders eager to get rid of inventories are slashing prices.
KB Home, the fifth-largest U.S. homebuilder, reported a first-quarter loss as sales plunged 43 percent.
``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call with investors on March 28. ``Some are worried about losing their jobs, others believe prices have further to fall. Many are simply unable to qualify for financing, given the more restrictive lending environment.''
Washington Mutual Inc., the largest U.S. savings and loan, said today it will receive $7 billion from a group led by TPG Inc. to bolster its capital amid prospects for more losses tied to subprime mortgages. The company may post a $1.1 billion loss in the first quarter and plans to cut its quarterly dividend to 1 cent from 15 cents, preserving $490 million of capital annually.