WASHINGTON - Contracts to purchase previously owned homes in the U.S. plunged in December by the most since May 2010 as higher borrowing costs and bad weather held back sales.
A gauge of pending home sales slumped 8.7 percent after a revised 0.3 percent drop in November that was initially reported as a gain, the National Association of Realtors said Thursday.
Tight inventory and unusually cold temperatures discouraged prospective buyers, according to the group. Further gains in hiring, household wealth and consumer confidence would help the housing recovery and the economy.
“Of course weather had an impact,” said Christophe Barraud, chief economist at Market Securities in Paris. “The housing recovery will slow in 2014, but the sector is still going in the right direction.”
Contract signings in December dropped 6.1 percent from the year prior, on an unadjusted basis, after a 4.4 percent decrease in the 12 months that ended in November, the Realtors group reported.
The pending sales index was 92.4 on a seasonally-adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the Realtors group.
All four regions showed a decrease from November, led by a 10.3 percent slump in the Northeast. Contract signings declined 9.8 percent in the West, 8.8 percent in the South, and 6.8 percent in the Midwest.
Economists consider pending sales a leading indicator because they track new purchase contracts. Sales of previously owned home are tabulated when a contract closes, usually a month or two later.
“Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers,” National Association of Realtors chief economist Lawrence Yun said as the report was released.
Federal Reserve policymakers cut the pace of bond buying for a second straight meeting Wednesday, uniting behind a strategy of gradual withdrawal from Ben Bernanke’s unprecedented easing policy as Janet Yellen prepares to succeed him as chairman. While the recovery in housing has “slowed somewhat,” economic activity has picked up, policymakers said after concluding their two-day meeting.
Home prices continue to rise. The S&P/Case-Shiller index of property prices in 20 cities climbed 13.7 percent in November from a year earlier,the biggest 12-month gain since February 2006.
Mortgage rates are rising along with prices, reducing affordability. The average rate for a 30-year, fixed mortgage was 4.32 percent in the week ending Thursday, up from 3.42 percent a year earlier, according to the Federal Home Loan Mortgage Corp.
Still, after two years of rapid growth, real-estate agents and homebuilders continue to see opportunity in the market, said Donald Tomnitz, president and chief executive officer of D.R. Horton Inc., the largest U.S. homebuilder by revenue. The company’s weekly sales picked up early this month, which could be a sign of strong demand to come in the spring. D.R. Horton, based in Fort Worth, this week reported its most profitable first quarter since 2006 as it raised prices.
“Housing-market conditions continue to improve,” Tomnitz said on a Tuesday earnings call. “We personally are counting on higher sales this year than a year ago.” Information for this article was contributed by Ainhoa Goyeneche of Bloomberg News.
Business, Pages 27 on 01/31/2014