Fewer Americans signed contracts to purchase previously owned homes in February as limited inventory and access to credit held back a more robust recovery in housing.
The index of pending home sales fell 0.4% to 104.8, the second-highest level since April 2010, after a revised 3.8 percent increase the prior month, the National Association of Realtors reported today in Washington. The median forecast in a Bloomberg survey called for a 0.3% drop.
A smaller number of properties for sale may be hindering buyers with access to credit, while others with limited cash for a down payment are finding it difficult to take advantage of historically low interest rates. At the same time, a pickup in property values may encourage more people to list their homes as the spring selling season gets under way.
“Lending is excessively tight and continues to be,” Benjamin Ayers, an economist with Nationwide Mutual Insurance Co. in Columbus, Ohio, said before the report. “It’s limiting the expectations for growth.”
Estimates of 37 economists in the Bloomberg survey ranged from a drop of 3% to an increase 4%. The Realtors’ group revised January’s data from a previously reported increase of 4.5%.
Stocks fell after the Standard & Poor’s 500 Index approached a record high yesterday. The S&P 500 dropped 0.6% to 1,554.75 at 10:07 a.m. in New York.
Two of four regions saw a decrease in February pending home sales, today’s report showed, led by a 2.5% drop in the Northeast. Pending sales climbed 0.4% in the Midwest and 0.1% in the West.
Compared with a year ago, contract signings rose 5% following a 9.6% gain in the 12 months ended in January.
Pending home sales are considered a leading indicator because they track contract signings in advance of actual transactions, which are tabulated a month or two later. Existing home sales made up about 93% of the housing market last year.
Previously owned properties rose in February to the highest level in more than three years, the Realtors group reported on March 21. Sales climbed 0.8% to a 4.98 million annualized rate, the fastest since November 2009.
The pickup in demand combined with limited supply of available properties is pushing up home values. The median price of an existing home increased to $173,600 last month, an 11.6% increase from February 2012 that was the biggest 12-month gain since November 2005.
“Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50% from current levels,” Lawrence Yun, NAR chief economist, said in a statement. “Most local builders are small businesses and simply don’t have access to capital.”
The number of previously owned homes on the market climbed to 1.94 million from 1.77 million in January, marking the first gain in supply since April. At the February sales pace, it would take 4.7 months to sell those houses compared with 4.3 months at the end of January.
“The volume of home sales appears to be leveling off with the constrained inventory conditions,” Yun said.
Michael Makris, a real estate agent at McEnearney Associates Inc. in Alexandria, Virginia, said clients are wasting no time bidding for properties in the area just across the Potomac River from the nation’s capital.
“What you’re hearing about inventory being low yet the number of buyers being very high is right on target,” Makris said. “It’s caused prices to rise pretty significantly.”
One couple had been house shopping for about five months before Makris showed them a condominium in Arlington, Virginia, with an asking price of $599,000. Within an hour, they successfully bid $625,000 for the property.
“Demand is unbelievable,” he said. “Buyers are out there now in droves.”
Since about the middle of last year, demand for existing homes priced $500,000 and higher have led the percentage gains in sales, according to the National Association of Realtors.
Total sales climbed 10.2% in February from the same month in 2012, according to the group’s report last week. Purchases of houses priced less than $100,000 were down 12.8% during the period, and those priced $100,000 to $250,000 were up 6.8%.
The year-to-year gains for houses priced at $500,000 or more ranged from 23.1% to 27.6%.
A report yesterday from S&P/Case-Shiller showed residential real estate prices increased in January by the most since June 2006. The group’s index of property values in 20 U.S. cities climbed 8.1 percent.
Improvements in the housing market are rippling through the economy -- from construction companies and agents to lenders and retailers such Home Depot Inc. and Williams-Sonoma Inc.
“We are far from early-2000 levels in the scope of economic benefit from a good-to-robust housing market in creating jobs and generating tax revenue,” said Robert Alderson, president and chief executive officer of Kirkland’s Inc., in Nashville, Tennessee, retailer of home accessories and furniture.
“Kirkland’s did experience a chilling effect on customer traffic in spending late in Q4 and early in Q1 2013 for our middle-income customer,” Alderson said on a March 14 earnings call. “But business trends have improved nicely thus far in March, which is encouraging.”