Contracts to purchase previously owned homes rose less than forecast in January, adding to signs housing was weakening in early 2014.
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Faster gains in hiring and consumer confidence are needed to sustain the housing recovery. Home construction fell last month amid harsh winter weather, which combined with a lack of supply, strict lending rules and waning affordability to also reduce existing-home sales that are tabulated when a contract closes.
“There’s a broad trend of cooling in the housing market,” Yelena Shulyatyeva, New York-based U.S. economist at BNP Paribas, said before the report. BNP was the best forecaster of pending home sales the past two years according to data compiled by Bloomberg. “An increase in mortgage rates and home prices has hurt those who want to buy.” The outlook is “just more of the same, for housing and for the economy.”
Estimates in the Bloomberg survey ranged from a drop of 5% to a rise of 5%. The Realtors’ group revised December data from a previously reported decline of 8.7%.
Two of four regions, the Northeast and the South saw an increase from the previous month, today’s report showed.
“Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping,” Lawrence Yun, NAR chief economist, said in a statement. “Limited inventory also is playing a role, especially in the West, while credit remains tight and affordability isn’t as favorable as it was a year ago.”
Contract signings decreased 9.1% from a year earlier on an unadjusted basis, after a 6.1% drop in the prior 12-month period.
Economists consider pending home sales a leading indicator because they track contract signings. Existing home sales are tabulated when a contract closes, typically a month or two later.
Recent data indicate adverse weather was one reason for depressed housing activity. Purchases of previously-owned houses fell 5.1% to a 4.62 million annual rate last month, the fewest since July 2012, the Realtors group reported on Feb. 21. Home construction fell 16% to an 880,000 annualized rate in January, the biggest plunge since 2011, according to the Commerce Department.
Purchasing a home has become less affordable as borrowing costs and home values increase. The 30-year fixed mortgage rate averaged 4.37% in the week ended Feb. 27, up from 3.51% around the same time a year ago, according to Freddie Mac. The S&P/Case-Shiller index of home prices in 20 cities climbed 13.4% in December from the same month in 2012, after rising 13.7% in the year ended in November.
D.R. Horton Inc., a Fort Worth, Texas-based homebuilder, is among companies counting on improving demand.
“Housing market conditions continue to improve across most of our operating markets,” Chief Executive Officer Donald Tomnitz said on a Jan. 28 earnings call. “Our weekly sales pace accelerated in January, as compared to the first quarter, which could be an early sign of strong demand to come in the spring.”
