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Sales Of Homes Continue To Slide

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Bloomberg News

Published: February 8, 2008

The number of Americans signing contracts to buy previously owned homes fell more than forecast in December, reinforcing Federal Reserve officials' view that the housing slump won't bottom out until late this year.

The National Association of Realtors' index of signed purchase agreements dropped 1.5 percent to 85.9, the second-lowest level since the Chicago-based group began keeping records in 2001.

The drop in pending home sales follows a revised 3 percent decline for November that was larger than previously reported. Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from January's forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said Thursday.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to January 2001. The gauge is considered a leading indicator because it tracks contract signings. The Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New-home sales also are recorded when a contract is signed.

The Realtors group has said inventories of existing homes need to decline to a five to six months' supply to stabilize the market.

The elevated inventories also suggest prices may fall further and the housing slump will continue in coming months.

The decline in housing is taking a toll on other sectors of the economy. The Institute for Supply Management said Tuesday that its index of nonmanufacturing businesses contracted at the fastest pace since the 2001 recession.

Thursday, the government figures showed the number of Americans filing first-time claims for unemployment benefits fell less than forecast. Initial jobless claims decreased by 22,000 to 356,000 in the week ended Feb. 2, from a two-year high of 378,000 a week earlier, the Labor Department said today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decline to 342,000.

"We have obviously experienced a significant decline in the growth of overall economic activity since August, with much of the decline occurring in the last two months," Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, told banking executives Tuesday in Charleston, W.Va. He also said he sees "the possibility of a mild recession" and further reductions in interest rates "may be warranted."

The Federal Open Market Committee lowered the benchmark lending rate by a half point to 3 percent on Jan. 30, after a three-quarter-point inter-meeting cut Jan. 22. The combined 1.25 percentage point reduction in nine days is the fastest decline in the federal funds rate in the 20 years it has been used as the central policy tool.

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