U.S. Economy: Pending Sales of Existing Homes Unexpectedly Rise

The number of Americans signing contracts to buy existing homes unexpectedly rose as the first national drop in prices since the 1930s lured buyers back into the market in the West, Midwest and South.

The index of pending home resales jumped 6.3 percent in April, the most since 2001, after a 1 percent drop in March, the National Association of Realtors said today in Washington. The March reading was the lowest level since the NAR started keeping records eight years ago.

The figures may be a sign that the glut of 5 million unsold properties may be on the way down, which economists say is a prerequisite for stabilization in the industry. Federal Reserve Chairman Ben S. Bernanke warned last week that the economy will remain in danger of weakening further until housing reaches a bottom

``We are seeing sales picking up notably where prices are coming down,'' said Lawrence Yun, chief economist of the realtors' group. ``The first necessary thing is for sales to rise'' and today's data is a step in the right direction, he said.

Treasury securities, which had dropped earlier in the day, stayed lower after the report. Yields on benchmark 10-year notes rose to 4.03 percent at 10:38 a.m. in New York, from 3.91 percent at last week's close. The Standard & Poor's 500 Stock Index advanced 0.4 percent to 1,366.14. The S&P homebuilding index rose 1.1 percent.

Economists' Forecasts

Economists projected the index would fall 0.4 percent, according to the median forecast in a Bloomberg News survey of 32 economists. Estimates ranged from a drop of 1.5 percent to a 1 percent gain.

``There are some signs that sales are close to a bottom, although the level of inventories is so high that there is going to be continued pressure on prices and housing starts,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who had the highest forecast in the Bloomberg News survey.

``We'll need to see more than this report to suggest housing is really rebounding,'' said O'Sullivan.

Pending resales were still down 13 percent from April 2007, today's report showed.

The measure increased 13 percent in the Midwest and 8.3 percent in the West. Pending resales rose 4.6 percent in the South and decreased 1.9 percent in the Northeast.

Yun also said the drop in consumer confidence and stricter lending rules make the immediate outlook ``unclear.''

Leading Indicator

The pending resales measure is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

The Realtors group will release its May existing home sales report on June 26. Purchases in April dropped to a 4.89 million annual pace, matching the weakest rate since records began. It would take an all-time high of 11.2 months to sell all the houses on the market at the current sales pace.

The lack of demand is rippling through the economy. Sherwin-Williams Co., the largest U.S. paint retailer, slashed its 2008 profit forecast last week because of the decline in the domestic housing market and rising costs for petroleum-derived raw materials.

``The market is deteriorating dramatically,'' Chief Financial Officer Sean Hennessy said on a June 3 call with analysts and investors. Chief Executive Officer Christopher M. Connor during the call also said demand probably won't improve for the rest of the year.

Mortgage Rates

Concern that home prices will keep falling and recent increases in mortgage rates will probably extend the slump in sales. The average rate on a 30-year fixed mortgage increased to 6.09 percent last week, the highest since the week ended March 20, according to Freddie Mac, the No. 2 U.S. purchaser of home loans.

Other measures are also showing sales may continue to decline. The Mortgage Bankers Association's index of applications for loans to purchase homes has fallen 13 percent since the beginning of May, ending the month at the lowest level in five years.

Values were down 3.1 percent in the first quarter compared with the same period last year, the second quarterly decline after 13 years of increases, the Office of Federal Housing Enterprise Oversight said May 22.

For all of last year, the median price of an existing home dropped 1.8 percent, the first decrease since records began in 1968 and probably the first since the 1930s, the group said in January.

`Most Scared'

``What people are most scared of is looking like a schmuck,'' Toll Brothers Holdings Inc. Chief Executive Officer Robert Toll said at a conference in New York last week. ``What do I want to buy a home for and next year be looking at 10 percent less asset?''

Toll predicted the housing slump may last another two to three years. On June 3, the company reported its third straight quarterly loss.

The number of Americans in danger of losing their homes to foreclosure rose to the highest in almost 30 years in the first quarter, the Mortgage Bankers Association said June 5.

Still, the decline in prices is making homes more affordable. The Realtors group's affordability index stood at 129.8 in April. A reading of 100 indicates a family with the median income could afford a median-priced house at current interest rates.

The pending-sales index is based on a sample of 20 percent of transactions in the multiple listing service used by real estate agents, while the existing-home sales report covers about 40 percent. The Realtors' data on pending sales go back to January 2001, and the group started publishing the index in March 2005.