The number of contracts to buy previously owned homes fell more than forecast in November as Americans waited for a first-time buyer tax credit to be extended.
The index of signed purchase agreements, or pending home sales, dropped 16%, after a revised 3.9% October gain that was more than initially reported, the National Association of Realtors said Tuesday. It was the first decrease in 10 months.
The figure shows that housing may be at risk of weakening when homebuyer incentives, which were extended in November, expire this year. Unemployment close to a 26-year high and weaker consumer finances remain hurdles to a sustained acceleration in home sales.
"The buildup in sales and contracts was driven by the rush to beat the deadline for the tax credit," said Bill Jordan, an economist at Ried Thunberg & Co. in Jersey City, N.J., whose forecast for a 12% drop was the closest in a Bloomberg News survey. After the extension expires, housing will have "some kind of a mild recovery," he said.
Pending home sales were projected to fall 2%, after an originally reported gain of 3.7% in October, according to the median of 35 forecasts in the Bloomberg survey. Estimates ranged from a drop of 12% to a 3.9% increase.
Compared with November 2008, pending sales were up 19.3%, the Realtors group said.
All four U.S. regions registered decreases in November, led by 26% slumps in the Northeast and Midwest. Pending sales dropped 15% in the South and 2.7% in the West.
Pending home sales are considered a leading indicator because they track contract signings. The Realtors' existing-home sales report tallies closings, which typically occur a month or two later. The Realtors group started publishing the index in March 2005, and the data goes back to January 2001.
Transactions had to close by Nov. 30 for buyers to qualify for the tax credit, which explains why resales continued to rise through November.
President Obama on Nov. 6 extended the $8,000 first-time buyer credit and expanded it to include current homeowners in a bid to boost demand. The extension allows closings to occur by the end of June as long as contracts are signed by the end of April. Still, the measure may have pulled sales forward and could result in fewer purchases in coming months.
Sales of existing homes in November rose 7.4%, to a 6.54 million annual rate, the highest level in almost three years, the Realtors said on Dec. 22. Foreclosures accounted for 33% of all sales, the trade group said.
Federal Reserve officials are trying to sustain the housing rebound by pledging to keep the benchmark interest rate near zero for an "extended period," according to their latest policy statement. Even so, mortgage rates have begun rising.