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 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent 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. Combined, those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate.
“You did get a bit of a shock when mortgage rates went up,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said before the report. “It’s an erratic pace of expansion.”
The median forecast of 39 economists surveyed by Bloomberg projected the gauge would be unchanged from the month before. Estimates ranged from a 2.8 percent decline to a 3.5 percent increase.
Last month’s drop was the biggest since a 28.9 percent plunge in May 2010, when the extension of a government tax credit expired.
The Realtors’ report showed purchases rose 1.1 percent from September 2012 on an unadjusted basis, the smallest advance in more than two years.
The pending sales index was 101.6 on a seasonally-adjusted basis, the weakest since December. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the NAR.
“This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014,” NAR Chief Economist Lawrence Yun said in a statement. “Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year.”
All four regions showed a decrease from a month earlier, led by a 9.6 percent drop in the Northeast and a 9 percent decline in the West.
Economists consider pending home sales a leading indicator because they track purchase contracts. Existing home sales are tabulated when a contract closes, usually a month or two later.
Last week, the Realtors’ group said existing home sales fell in September for the first time in three months as higher prices and mortgage rates curbed demand. Purchases dropped 1.9 percent to a 5.29 million annual rate from a revised 5.39 million pace in August that was the strongest since 2009.
The median price of an existing home increased to $199,200 from $178,300 in September 2012, the group reported last week.
The NAR forecasts sales of existing homes to be little changed in 2014 at 5.18 million compared with 5.16 million this year.
The average rate for a 30-year fixed mortgage was 4.58 percent in the week ended Aug. 22, the highest level since July 2011. It’s since fallen, averaging 4.13 percent for the week ended Oct. 24, according to Freddie Mac in McLean, Virginia.
Robert Schottenstein, chairman and chief executive officer of M/I Homes Inc., said the “fairly sudden and meaningful” jump in rates hurt sales at the Columbus, Ohio, builder. The government shutdown this month also put a dent in consumer confidence, which could discourage buyers further, he said.
“The net effect of all of this is that sales have slowed,” Schottenstein said on an Oct. 24 earnings call. “Traffic, both in our models and on the Internet, remains very good. But many consumers are clearly more cautious and not moving as quickly when it comes to making a decision to buy.”
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