Contract signings to purchase previously owned U.S. homes unexpectedly fell in April, adding to signs the housing market is struggling to regain momentum.
The index of pending home sales declined 1.5% from the previous month, missing all economist estimates, after a 3.9% increase in March, according to data Thursday from the National Association of Realtors in Washington. The measure was up 0.4% from a year earlier on an unadjusted basis, the first positive reading in a year, suggesting some stabilization.
Sales have been hampered even with average 30-year mortgage rates slipping below 4% this week, according to mortgage buyer Freddie Mac. That average is down from nearly 5% in November. Home prices have risen faster than incomes in 78% of U.S. areas since 2012.
The monthly decline adds to signs of a soft housing market as the economy may be losing some steam. Previous data showed sales of both new and existing homes fell in April while single-family housing permits dropped to the lowest level in almost two years. At the same time, low mortgage rates, more affordable properties and rising wages should support demand, and contract activity remains higher than in late 2018.
Pending home sales are often looked to as a leading indicator of existing-home purchases and a measure of the health of the housing market in the coming months.
"Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising," association chief economist Lawrence Yun said in a statement. "It's inevitable for sales to turn higher in a few months."
Contracts decreased from the previous month in three of four regions, led by a 2.5% drop in the South. The Midwest was the only area to record a gain, at 1.3%.
Forecasts for monthly pending home sales in a Bloomberg survey of economists ranged from a 1% drop to a 1.6% gain.
Pending sales is a measure of home purchases that are usually completed a month or two later.
Freddie Mac reported Thursday that the average 30-year fixed-rate mortgage tumbled to 3.99% with an average 0.5 point. (Points are fees paid to a lender equal to 1% of the loan amount and are in addition to the interest rate.) It was 4.06% a week ago and 4.56% a year ago. The 30-year fixed rate moved below 4% for the first time since January 2018.
The 15-year fixed-rate average fell to 3.46% with an average 0.5 point. It was 3.51% a week ago and 4.06% a year ago. The five-year adjustable rate average dropped to 3.60% with an average 0.4 point. It was 3.68% a week ago and 3.80% a year ago.
Several factors are exerting downward pressure on mortgage rates. Investors are anxious about the continuing irresolution of the U.S.-China trade dispute. They are worried about the turmoil surrounding the United Kingdom's pending exit from the European Union, and European economic growth in general, which they fear could tamp down domestic growth. They are also concerned a recession may be near.
All of this is causing an increased demand for U.S. Treasury notes, driving bond prices up and yields down. The yield on the 10-year Treasury note fell to 2.27% on Wednesday, its lowest level since September 2017.
"Yields plummeted to 20-month lows in recent days as investors -- who continue to weigh risks surrounding the U.S.-China trade negotiations, Brexit and slowing European economic growth -- accelerated their flock to the safe haven of Treasurys," said Matthew Speakman, a Zillow economic analyst.
An increasing number of experts are convinced the Federal Reserve will cut interest rates later this year. But for now, many expect the mortgage-rate slump to continue. Bankrate.com, which puts out a weekly mortgage-rate trend index, found that more than half of the experts it surveyed say rates will go down again in the coming week.
"While we may see a day or two correction to a market which is very much overbought, the general trend to higher Treasury prices and lower yields should continue," said Dick Lepre, senior loan officer at RPM Mortgage in San Francisco. "We are headed toward a 2% 10-year yield. I do not believe that this is simply an indication of increased recession probability. This is more about lack of confidence in the economies of most of the rest of the world. The consequence is flight-to-quality buying of U.S. Treasury and MBS [mortgage-backed securities] debt as evidenced not only by falling yields but the very strong U.S. dollar."
Meanwhile, despite falling rates, mortgage applications pulled back. According to the latest data from the Mortgage Bankers Association, the market composite index -- a measure of total loan application volume -- decreased 3.3% from a week earlier. The refinance index fell 6% from the previous week, while the purchase index dipped 1%.
The refinance share of mortgage activity accounted for 39.7% of all applications.
"Purchase mortgage applications continued their impressive streak -- now at 15 weeks -- of year-over-year increases," said Bob Broeksmit, Mortgage Bankers Association president and chief executive officer. "Despite the ongoing decline in mortgage rates, however, purchase and refinance activity slipped from the previous week. Overall demand remains healthy, but prospective buyers -- especially first-time buyers -- still face low inventory, higher home prices, and stiff competition."
Information for this article was contributed by Reade Pickert of Bloomberg News; by Kathy Orton of The Washington Post; and by Josh Boak of The Associated Press.
Business on 05/31/2019
Print Headline: Home contracts take surprising fall