Pending Home Resales in U.S. Unexpectedly Rose 5.3%

By Timothy R. Homan

Aug. 7 (Bloomberg) -- More Americans unexpectedly signed contracts to purchase previously owned homes in June, a sign that lower prices are drawing some buyers back into the market.

The index of pending home resales rose 5.3 percent after a revised 4.9 percent decline in May, the National Association of Realtors said today in Washington. The gain is the third this year.

Plummeting property values, spurred by mounting foreclosures, may be helping to stabilize the market by making houses more affordable. Still, repossessions may keep growing as stricter lending rules make it harder for owners to refinance their mortgages.

``What we're getting is a little bit of foreclosures thrown in with voluntary home sales,'' John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said in an interview with Bloomberg Television. ``Although foreclosures are up, there seems to be enough of a price decline that buyers are starting to look for bargains and they're willing to purchase.''

Economists had projected the index would fall 1 percent after a previously reported 4.7 percent decrease in May, according to the median of 37 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 3 percent to a 3.5 percent gain.

A separate report today from the Labor Department showed initial jobless claims for the week ended Aug. 2 unexpectedly rose to the highest level in six years, signaling the labor market continues to weaken. Initial jobless claims increased by 7,000 to 455,000, the most since March 2002.

Market Reaction

Stocks trimmed losses following the housing report. The Standard & Poor's 500 index fell 0.7 percent to 1,280.3 at 10:06 a.m. in New York. Treasuries maintained earlier gains with the yield on the benchmark 10-year note at 4 percent compared with 4.05 percent late yesterday.

Pending resales were down 12 percent from June 2007, today's housing report showed.

The measure last month increased in all four regions of the country from May, led by a 9.3 percent gain in the South.

Purchase contracts also rose 4.6 percent in the West, 3.4 percent in the Northeast and 1.3 percent in the Midwest. Compared with a year ago, contract signings remained down in all four regions.

`Floor on Prices'

``Buyers entering the hardest-hit markets, in some cases with multiple-bid offers, may have put a floor on prices,'' Lawrence Yun, the agents' group chief economist, said in a statement. ``In addition, rising commodity prices and higher construction costs have resulted in a very unusual market today with existing-home prices being less than replacement building costs in some areas.''

The pending resales report is considered a leading indicator because it tracks contract signings. Closings, which typically occur a month or two later, are tallied in a separate report from the Realtors.

The group's figures on July existing home sales are due Aug. 25. Purchases in June fell 2.6 percent to a 4.86 million annual pace, the lowest level in a decade, from a 4.99 million rate the prior month. At the June sales rate, it would take 11.1 months to sell all the houses on the market, about twice the supply that reflects a balanced market, according to the agents' group.

``As long as housing is a negative portion of the economy, and I think that could well happen and continue to happen until say the beginning of 2009, it's hard for me to get really optimistic about a pickup'' in growth, Robert Parry, former president of the Federal Reserve Bank of San Francisco, said in an Aug. 5 Bloomberg Radio interview.

Drop in Applications

Other measures are still signaling sales may keep dropping. The Mortgage Bankers Association's index of applications for loans to purchase a house reached a five-year low at the end of July.

Home prices in 20 U.S. metropolitan areas fell in May by 15.8 percent from a year earlier, the most on record, the S&P/Case-Shiller home-price index showed on July 29.

A surge in bank repossessions is contributing to the drop in property values. Foreclosure filings in the second quarter jumped 121 percent from a year earlier, RealtyTrac Inc., a seller of default data, said last month. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California- based company began reporting in January 2005.

Homebuilders are struggling as sales drop. D.R. Horton Inc., the largest U.S. homebuilder, this week reported its fifth straight quarterly loss. The Fort Worth, Texas-based company recorded $330.4 million in pretax expenses to write down property value and abandon scheduled land purchases.

``We're continuing to cut at all levels,'' Chief Executive Officer Donald Tomnitz said during an Aug. 5 conference call with analysts. Foreclosures continue to ``cloud'' the housing market, he said.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net