Pending Sales of Existing U.S. Homes Fell in November

The number of Americans signing contracts to buy previously owned homes fell more than forecast in November, signaling further deterioration in housing.

The National Association of Realtors' index of pending home sales decreased 2.6 percent to 87.6, following a 3.7 percent gain in October that was larger than previously estimated, the group said today in Washington.

The figures underscore Treasury Secretary Henry Paulson's forecast today that the U.S. housing recession will continue, posing the biggest risk to economic expansion. Economists said more stringent lending practices after the collapse in subprime lending and prospects that home prices will keep falling are deterring buyers.

There is no evidence it is bottoming, Paulson said today about the housing market. He added that a plan designed to stem a wave of foreclosures may need to be expanded beyond subprime homeowners.

Economists forecast the index of signed contracts for existing homes would fall 0.7 percent following a previously reported 0.6 percent October increase, according to the median of 33 projections in a Bloomberg News survey. Estimates ranged from a drop of 3 percent to a 0.3 percent increase.

Compared with a year earlier, the index was down 19 percent.

`Further to Fall'

Inventories are still high, and home prices have further to fall in order to lift affordability, said Justin Smirk, senior economist at Westpac Banking Corp. in London. There's more bad news to come in housing before it gets better. Westpac forecast pending sales would drop 2.5 percent.

The housing slump is likely to last well into 2008, hurting economic growth and prompting Federal Reserve policy makers to lower interest rates, analysts said.

Stocks extended gains following the report, led by miners and energy products as the price of oil rebounded. Treasury securities fell as the gain in stocks reduced demand for the relative safety of U.S. government debt. The benchmark 10-year note yielded 3.88 percent at 10:33 a.m. in New York, up from 3.83 percent late yesterday.

Today's report showed pending resales fell in three of four regions. Purchases decreased 13 percent in the Northeast, 4.1 percent in the Midwest and 2.1 percent in the West. Sales rose 2.3 percent in the South.

The bigger gain in October than previously estimated suggested the market may be stabilizing, according to Lawrence Yun, the group's chief economist.

`Uncertain' Outlook

Although there could be some minor slippage in the first quarter, existing home sales should hold in a narrow range before trending up, Yun said in a statement. The exact timing and the strength of a home-sales recovery is a bit uncertain.

Paulson, speaking during a visit to New York on CNBC television, said evidence shows the housing decline has further to run.

The Treasury chief indicated the outlook may prompt an expansion of the plan Bush administration officials brokered with mortgage lenders last month. The initiative was designed to make it easier to negotiate affordable loans and freeze some adjustable-rate mortgages at current rates.

One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers, Paulson said.

Unsold Homes

There was a 10.3 months' supply of previously owned homes on the market in November at the current sales pace, compared with an average 6.5 months in 2006 and 4.5 months a year earlier.

That excess is one reason property values are dropping. Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, based on the S&P/Case-Shiller home- price index. The decrease, reported last month, was the biggest since the group started keeping year-over-year records in 2001.

Record foreclosures are adding to the supply of unsold homes and will weigh further on prices this year, economists said.

We'll probably see more weakness in existing home sales given that inventories are so high, said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. Prices may keep dropping for a while.

Tougher lending rules are adding to market woes. A third of planned home sales were canceled or delayed in September, October and November because of loan problems, according to the results of a survey of 2,416 real-estate agents issued yesterday.

The Realtors association estimates 5.7 million homes will be sold in 2008, little changed from an estimated 5.65 million last year. Purchases of new homes will fall to 669,000 from 773,000.

KB Home

KB Home, the fifth-largest U.S. homebuilder, today reported a fourth-quarter loss as tumbling demand for new homes forced the company to write down land values. Los Angeles-based KB Home operates in 13 states, including California, Florida, Nevada and Arizona.

A report last week showed the labor market weakened in December, fueling concern the real-estate slump is spilling over to the rest of the economy.

The jump in the unemployment rate caused some economists to raise the odds of recession. Harvard University economist Martin Feldstein, member of the group that dates U.S. economic cycles, said the chance of recession had risen to more than 50 percent.

Central bankers said economic growth would probably be somewhat more sluggish than their previous estimate, according to minutes of the Dec. 11 Federal Open Market Committee meeting released last week. Policy makers cited housing and weaker consumer spending.

Fed's Plosser

While traders anticipate the Fed will lower its benchmark rate by at least a quarter point this month, Philadelphia Fed Bank President Charles Plosser said he hasn't made up his mind yet.

A substantially weaker outlook than expected, particularly if that weakness is projected to be more prolonged than anticipated, may require further adjustments to policy, Plosser said in a speech in Gladwyne, Pennsylvania.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The group's existing-home purchases report tracks closings, which typically occur a month or two later.