U.S. Pending Home Resales Rose 7.4% as Foreclosures Cut Prices

By Timothy R. Homan

Oct. 8 (Bloomberg) -- More Americans unexpectedly signed contracts in August to purchase previously owned homes as mounting foreclosures pushed down prices, making homes more affordable.

The index of pending home resales rose 7.4 percent, the most since October 2001, after falling 2.7 percent in July, the National Association of Realtors said today in Washington. The increase is the fourth so far this year.

Purchases ``have apparently been boosted by sales of heavily discounted foreclosed homes,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. ``Still, we expect even existing home sales will fall somewhat further, reflecting an intensifying credit crunch and broad-based weakening in the economy.''

The Federal Reserve and other central banks today cut interest rates as part of a coordinated effort to help ease credit concerns amid the worst financial crisis since the Great Depression. Still, with concern that property values will keep sinking and foreclosures will mount, banks remain reluctant to lend to potential homebuyers.

Economists projected the index would fall 1.3 percent, according to the median of 38 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 3.2 percent to a 4 percent gain.

Pending resales were up 8.8 percent from August 2007.

Regional Breakdown

All four regions saw pending sales increase from July. The West, an area where foreclosures are particularly prevalent, saw the biggest rise in pending sales with an 18.4 percent jump. Resales climbed 8.4 percent in the Northeast, 3.6 percent in the Midwest and 2.3 percent in the South.

Compared with a year ago, pending resales were up in all regions except the South.

Pending resales are considered a leading indicator because they track 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 September existing home sales are due Oct. 24. Purchases in August fell 2.2 percent to a 4.91 million annual pace from a 5 million rate the prior month.

Bank seizures may push down home prices further, scaring away buyers in coming months. U.S. foreclosures rose at the fastest rate in almost three decades, to a record 2.75 percent of all mortgages, in the second quarter, according to the Mortgage Bankers Association in Washington.

Foreclosures

A RealtyTrac Foreclosure report released last month showed home foreclosures rose 26.7 percent in August from a year earlier. An estimated one in every 416 homes is in some stage of foreclosure, the report said.

The number of previously owned homes on the market at the end of August represented 10.4 months' worth at the current sales pace, down from 10.9 months the prior month, NAR said on Sept. 24. A five to six months' supply reflects a stable market, the group has said.

The Fed lowered its benchmark interest rate to 1.5 percent, with similar cuts by the European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank. The Bank of Japan, which didn't participate in the move, said it supported the action.

``The months' supply of new homes for sale remained extremely elevated relative to the level that prevailed before the downturn in the housing market,'' Fed officials said in the minutes the Federal Open Market Committee meeting on Sept. 16, released yesterday in Washington. ``Tight conditions in mortgage markets over the summer continued to restrain housing demand.''

Values Drop

Home prices in 20 U.S. metropolitan areas fell 16.4 percent in July from a year earlier, the most since records began in 2001, the S&P/Case-Shiller home-price index showed on Sept. 30.

The U.S. Treasury Department is setting up a $700 billion program aimed at shoring up the financial system and freeing up more credit by purchasing illiquid assets from troubled firms. Congress approved the plan and President George W. Bush signed the measure into law on Oct 3.

Homebuilders are struggling as fewer potential buyers are able to secure financing. Lennar Corp., the second-largest U.S. homebuilder, last month reported its sixth straight quarterly loss.

``Consensus is building that falling home prices are not only detrimental to the economy at large but in order to repair our failing financial system we will have to stop the decline,'' Stuart Miller, chief executive officer of the Miami-based company, said on a conference call with analysts on Sept. 23.

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