Home resale pacts decline

Index of pending sales dips in January, perhaps heralding a showdown

Gauge was at record high in Oct.

South, Midwest saw drop in contracts for homes

March 13, 2005|By BLOOMBERG NEWS

A new index shows that pending sales of previously owned homes fell in January to the lowest level since May 2004.

The index of signed contracts for sales of existing homes decreased 2.1 percent during the month to 120.6, reflecting declines in the South and Midwest, according to the National Association of Realtors. That was more than completed resales of homes, which the group previously reported declined 0.1 percent in January to a 6.8 million annual rate.

The index of pending sales reached a record of 128.1 in October of last year.

The indicator was developed at the request of the Federal Reserve for a more timely picture of home sales, the Realtors group said

"This data suggest that housing activity will likely slow modestly in the coming months, which I would characterize as from a frenzied pace to a more moderate pace," Lawrence Yun, senior economist for the Realtors group, said Thursday.

For all of 2004, actual sales of previously owned homes were a record 6.78 million. The National Association of Realtors sales data now includes purchases of condominiums and co-ops, reflected for the first time in statistics released Feb. 25.

Pending resales fell in two of the four U.S. regions. The index dropped 5.6 percent in the South to 123.2, and 4.5 percent in the Midwest to 113.5. The pending sales gauge rose 3.7 percent in the Northeast to 105.9, and 1.9 percent in the West to 135.3, the second-highest ever.

The modeling for the pending-sales indicator received input from the Federal Reserve and independent housing analysts, the Realtors said. The index is based on a sample that includes 20 percent of all home sales.

Eighty-seven percent of all pending sales are completed within two months, according to the Realtors association.

An index of 100 is equal to the average level of contract activity in 2001. The pending resales index is designed to provide a better estimate of combined home sales.

Douglas Duncan, chief economist at the Mortgage Bankers Association, is forecasting a 7 percent decline in home sales this year and average 30-year fixed mortgage rates of 6.2 percent.

Mortgage rates declined to an average of 5.63 percent in February from 5.71 percent in January, according to Freddie Mac, the No. 2 buyer of U.S. mortgages. Rates rose to 5.85 percent last week.

Thirty-year fixed mortgage rates have declined about half a percentage point since Federal Reserve policy-makers began raising their benchmark lending rate at the end of June. Central bankers have raised the rate 1.5 percentage points to 2.5 percent.

Thirty-year mortgage rates traditionally have tracked more closely with changes in the federal funds target rate, according to Anthony Chan, senior economist at JPMorgan Fleming Asset Management in Columbus, Ohio.

"The housing market should remain fairly healthy in the first half of this year despite rising short-term interest rates, because we have not seen the full brunt of those effects in long- term mortgage rates yet," Chan said. "Until that happens we are not likely to see any real negative impact on the residential sector."

Sales of new single-family homes fell 9.2 percent in January to 1.106 million houses at an annual rate, the lowest level in a year.

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