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US Pending Home Sales Decline Unexpectedly in August: NAR

H.S. Borji
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US Pending Home Sales Decline Unexpectedly in August: NAR

Contracts to buy existing homes declined unexpectedly in August, raising more red flags the US housing market will be slow to gather momentum in the second half of the year.

The pending home sales index declined 1 percent in August to 104.7, following a downwardly revised gain of 3.2 percent the prior month, the National Association of Realtors reported today. The median estimate of economists called for a slight decrease of 0.1 percent.

Compared to August 2013, pending home sales were down 2.2 percent, following an annualized drop of 2.1 percent the previous month.

Despite the decline, August marked the fourth consecutive month the pending home sales index was above 100, which represents the average level of contract activity.

Pending home sales declined in three of the four major US regions. The index fell 3 percent to 86.5 in the Northeast and 2.1 percent to 102.4 in the Midwest. Pending home sales declined 1.4 percent in the South, bringing the index to 117.

Pending home sales increased in the West for the fourth consecutive month, rising 2.6 percent to 102.1.

Pending home sales reflect contract activity for existing single-family homes, which is the largest segment of the residential real estate market. They allow economists to determine the pace of existing home sales, which are based on contract closings.

“Fewer distressed homes at bargain prices and the acknowledgement we’re entering a rising interest rate environment likely caused hesitation among investors last month,” said NAR chief economist Lawrence Yun in a statement.

“With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home,” Yun added.

The latest batches of government and industry data paint a mixed picture of the housing recovery. On the one hand, construction activity pulled back sharply in August, as groundbreaking plunged 14.4 percent and building permits declined 5.6 percent. On the other hand, builder confidence rose in September to the highest level since 2005 amid brighter sales expectations and increased buyer traffic.

On the sales front, the data were mixed. Previously-owned home sales declined unexpectedly in August, falling 1.8 percent, NAR data showed earlier this month. Existing home sales had increased in each of the previous four months.

Meanwhile, the sale of new homes, which account for a much smaller portion of the market, surged 18 percent, the biggest single-month advance since 1992.

On balance, however, the numbers indicate a general uptrend in housing activity, as an improving labour market and increased savings continue to make home-buying a viable option for American households.

On the other side of the equation, the biggest inhibitors to housing sector activity remain sluggish earnings growth, rising mortgage rates and higher house prices.

According to Freddie Mac, the average commitment rate on a fixed 30-year mortgage was 4.2 percent in the week ended September 25. That was down slightly from the previous week’s average rate of 4.23 percent.

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