Pending US home sales slump to nine-year low

by P. Parameswaran P. Parameswaran –WASHINGTON (AFP)

– The number of contracts signed to purchase existing US homes unexpectedly fell to its lowest level in nine years, data showed Tuesday as analysts warn of further weakness in the embattled housing sector.

The National Association of Realtors said its pending home sales index declined 2.6 percent to 75.7 points based on contracts signed in June compared to the earlier month.

The index slipped to its lowest level on records dating back to 2001, and was down 18.6 percent from the same month a year earlier.

The decrease followed May's sharp 30 percent decline on the expiration of a government homebuyer tax credit aimed at propping up the housing sector, which was at the epicenter of financial turmoil that plunged the economy into recession in December 2007.

Lower home sales are expected to continue in the short term amid relatively high inventory levels, warned Lawrence Yun, NAR chief economist.

The economy, which started recovering since the middle of last year from the recession, is facing a growth slowdown as unemployment remains at a high 9.5 percent.

The pending home sales index is a one- to two-month leading indicator and the industry and analysts see more bad news before the situation improves despite historically low mortgage interest rates.

"Since the vast majority of pending home sales go to settlement in two to three months, the June reading suggests that some further weakness in existing home sales may be in store," said Michael Gapen of Barclays Capital Research.

There could be a "couple of additional months" of slow home-sales activity before it picks up later in the year, provided the job market continues to improve, Yun said.

Existing home sales had fallen for the second straight month in June, down 5.1 percent to 5.37 million units from 5.66 million in May, data released last month showed.

"If the pending sales index proves reliable, we should expect existing home sales to settle at about 4.1 million units, the lowest level since late 1996 and well down from April's tax credit-fueled 5.79 million units," said Ian Shepherdson, chief US economist for High Frequency Economics.

"But we still expect a gradual recovery to begin in the fourth quarter, triggered by near-record affordability," he said.

But others were more pessimistic.

"A robust recovery will not commence until early 2011, when prices resume consistent growth and the national recovery begins to accelerate," said economist Michael Zoller with Moody's Economy.com.

With the tax credit no longer able to prop up home sales, "any forthcoming rebound in housing will rely upon private sector employment and income growth," he said.

But incomes of Americans have been stagnant as they hold tight to their wallets, latest government figures show.

Under the homebuyer tax-credit program, contracts had to be signed by April and settled initially by June but the government had extended the settlement date to end September.