Pending sales of existing homes in U.S. fell 2.6% in August

Leading Indicator

Pending home sales are considered a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later, and made up more than 90 percent of the housing market last year.

Purchases of new homes, logged when contracts are signed, hovered close to a two-year high in August, the Commerce Department said yesterday. Sales of previously owned houses climbed to the highest since May 2010, the Realtors group reported on Sept. 19.

Property values also are improving. The S&P/Case-Shiller index of home prices in 20 cities increased more than forecast in July from a year earlier, a report from the group showed earlier this week.

Borrowing costs are bolstering the industry. The average rate on a 30-year fixed mortgage dropped to 3.49 percent in the week ended Sept. 20, matching the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac.

Fed Purchases

The Fed has also committed to purchasing $40 billion of mortgage debt a month, which may underpin a housing market that Chairman Ben S. Bernanke said has been “one of the missing pistons in the engine.”

“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing,” Bernanke said in a Sept. 13 press conference after the central bank announced the debt-buying plans.

The Fed’s so called quantitative easing is encouraging builders like Miami-based Lennar Corp.

“We see with QE3 that the government is focused on the home mortgage market and is working to keep rates low and to maintain an orderly flow of capital to the mortgage market,” Stuart Miller, the company’s chief executive officer, said on a Sept. 24 earnings call. “This is an important harbinger of future focus on nurturing a housing recovery.”

Home Foreclosures

Foreclosures may be starting to slow. Distressed sales accounted for 22 percent of existing-home purchases in August, the lowest since at least October 2008 when record-keeping began, the Realtors data showed. Such sales are comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage.

“It’s likely to reassert itself as an issue in the fall and in the winter, when the share of distressed transactions will actually rise and it’ll probably either slow down the improvement in home prices or maybe even reverse it for a couple of months,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Bloomberg News

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