US economy

US pending home sales post worst fall since 2010


US pending home sales surprised economists with a 4.9 per cent drop in December, the index’s worst month-to-month fall in more than nine years, a potential speed bump for an otherwise resurgent housing market.

The National Association of Realtors’ index for pending home sales, which tracks signed contracts to buy existing homes, slipped to a reading of 103.2 from 108.5 in the prior month as a shortage of listings capped buying activity. It was the index’s weakest level since February and the steepest decline since May 2010. Economists had expected a 0.5 per cent increase.

Pending home sales were still up 4.6 per cent year-over-over.

The housing market has recovered after a rough 2018, coinciding with a decline in mortgage rates. The rate on a 30-year fixed mortgages averaged 3.6 per cent during the week ending January 23, according to Freddie Mac. That’s down from a 2018 peak of 4.9 per cent.

Lawrence Yun, the NAR’s chief economist, said mortgage rates are expected to hold below 4 per cent for most of this year, and job creation is forecast to exceed 2m. The Federal Reserve cut its benchmark interest rate three times last year, and the central bank is expected to stand pat when it announces its next rate decision later on Wednesday.

Buyers will continue to contend with low inventory, which will support a 4 per cent increase in median home prices in 2020, Mr Yun added.

Ben Ayers, senior economist at Nationwide, said strong sales in October and November may have contributed to the sharp drop last month. Pending home sales rose 1.2 per cent in November, and December is normally a slow month for housing activity.

“A surprising drop in pending home sales could temporarily hit the brakes on the surge in housing activity in early 2020. Still, demand factors for housing remain strong and the weakness shown here is unlikely to last for long,” Mr Ayers said.

The NAR said last week existing home sales, which account for the vast majority of all home sales, climbed to their highest level in nearly two years in December, although supply was at a record low. Government data showed housing starts were at a 13-year high, but the sale of new homes during the month unexpectedly fell slightly.

The latest S&P CoreLogic Case-Shiller report on home prices showed a 3.5 per cent increase nationwide in November, up from 3.2 per cent in October.

Economists have looked to strength in the housing market to help offset softness in other areas of the economy such as the manufacturing sector, which has taken a further blow from Boeing’s 737 Max production halt.

“The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market,” Mr Yun said. “Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.”

Shares in major homebuilders were down on Wednesday, while the broader S&P 500 rose 0.3 per cent. PulteGroup fell more than 3 per cent. Toll Brothers and DR Horton were down 2 per cent.



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