Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market.
The index of pending home sales slumped 5.6%, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6% decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.
Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week.
“We’ll be in this weakness for a little bit, maybe even going into the fourth quarter,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, the second-best forecaster of pending home sales over the past two years, according to data compiled by Bloomberg. “This is a clear signal to the Fed as to what happens when you try to play with nascent housing recovery. The minutes indicated they were really concerned about it.”
Another report today showed factory production rose less than forecast in September, indicating manufacturing cooled heading into the budget battle that partially closed the federal government this month. Output at factories rose 0.1% after a revised 0.5% gain in August that was smaller than initially estimated, according to figures from the Federal Reserve. The median forecast of economists in a Bloomberg survey called for a 0.3% September gain.
Total industrial production, which also includes output by mines and utilities, advanced 0.6% as higher temperatures drove up electricity use.
Stocks were little changed after the pending sales report, erasing earlier gains. The Standard & Poor’s 500 Index rose less than 0.1% to 1,761.32 at 10:32 a.m. in New York. The S&P Supercomposite Homebuilding Index dropped 0.7%.
The median forecast of 39 economists surveyed by Bloomberg projected the pending home sales gauge would be unchanged from the month before. Estimates ranged from a 2.8% decline to a 3.5% increase.
Last month’s drop was the biggest since a 28.9% plunge in May 2010, when the extension of a government tax credit expired.