Americans signed fewer contracts to buy previously owned homes in February, indicating a pause in momentum for an industry that is helping power the economy.
An index of pending home sales fell 0.4 percent 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. Contract signings, unadjusted for seasonal variations, increased 5 percent from February 2012.
Tighter mortgage lending criteria have made it tougher for prospective homeowners to take advantage of historically low interest rates, while fewer properties for sale hinder those with access to credit. Rising property values may encourage more people to list homes as the spring selling season gets under way, giving the housing market another leg up.
“This year housing will remain a bright spot in the economy,” said Yelena Shulyatyeva, a U.S. economist in New York at BNP Paribas and the top forecaster of pending home sales over the past two years, according to data compiled by Bloomberg. Low inventory is a “temporary phenomenon. As prices rise a little bit more, we’ll see more supply and market forces will fix the situation.”
Stocks fell as concern over Europe’s debt crisis intensified. The Standard & Poor’s 500 Index, which approached a record high yesterday, dropped less than 0.1 percent to 1,562.85 at the close in New York.
The Spanish government said today that its 2012 budget deficit will be bigger than first estimated after the European Union requested changes in how tax claims are computed.
U.S. pending home sales are considered a leading indicator because they track contract signings in advance of actual closings, which occur a month or two later. Existing-home sales made up about 93 percent of the housing market last year.
Sales of 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 percent to a 4.98 million annualized rate, the fastest since November 2009.
“I’ve never seen a market like this, and I’ve been doing this for 19 years,” said Jenny Ames, a real estate agent at Coldwell Banker in Chicago. Ames, who sells properties on the city’s north side that range from $200,000 to $5 million, said she had about $130 million in sales last year. “The top agents in the city, most of us, doubled our sales in 2012 compared to 2011. This year, we’re again way ahead of where we were the year before.”
The pickup in demand combined with limited supply of available properties is pushing up home values. The NAR’s report last week showed the median price of an existing home increased to $173,600 last month, an 11.6 percent increase from February 2012 that was the biggest 12-month gain since November 2005.
“The challenge is that the inventory is just dribbling in,” said Ames. “The lack of inventory is creating pressure on buyers, and it’s encouraging them to respond with urgency.”
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.
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, sales of existing homes priced $500,000 and higher have led the percentage gains in activity, according to the National Association of Realtors.
Total sales climbed 10.2 percent 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 percent during the period, and those priced $100,000 to $250,000 were up 6.8 percent. The year-to-year gains for properties priced at $500,000 or more ranged from 23.1 percent to 27.6 percent.
“I think the underwriting or loan approval standards are a little too high still,” said Tony Geraci at Century 21 HomeStar in Highland Heights, Ohio, which has brokers in metropolitan areas throughout the state. The average market price of homes in the area served by his agency is around $125,000. “Some people have cleared up their credit, and there’s nothing they’ve done recently, but their credit score is still a little too low.”
The median pending home sales forecast in a Bloomberg survey called for a 0.3 percent drop. Estimates of 37 economists in the Bloomberg survey ranged from a drop of 3 percent to an increase 4 percent. The Realtors’ group revised January’s data from a previously reported increase of 4.5 percent.
Two of four regions saw a decrease in February pending home sales, today’s report showed, led by a 2.5 percent drop in the Northeast. Pending sales climbed 0.4 percent in the Midwest and 0.1 percent in the West.
“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. (KIRK:US), 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.”
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