Pending sales of existing U.S. homes rose modestly in October, bucking Wall Street forecasts, but the decline from a year ago was the third largest on record, a reminder of how far housing has fallen.
The National Association of Realtors said Monday its Pending Home Sales Index, based on contracts signed in October, was up 0.6 percent to 87.2 from an upwardly revised index of
86.7 in September.
The forward-looking indicator of home sales was more upbeat than expected by Economists, who had forecast a decline of 1 percent. The stronger-than-expected data, which measures contracts signed on sales that have yet to close, helped lift U.S. stock prices and weighed on prices for government bonds.
The data came a day ahead of a meeting of policy-makers from the Federal Reserve and traders saw it as increasing the likelihood the central bank would trim interest rates by a
modest quarter-percentage point, and not a bolder half-point as some had thought possible.
Still, the boost in pending sales was not enough to increase analysts' hopes for a housing recovery anytime soon.
"It's possible that after a big hit, housing sales will stabilize, but the short answer is that it's too soon to say," said James O'Sullivan, an economist with UBS Securities in Stamford, Connecticut.
The deep housing downturn and a related tightening in credit conditions have raised the prospect the U.S. economy could tumble into recession.
Morgan Stanley economists said in a research note Monday that a "mild" U.S. recession was now likely, with tighter credit set to put a crimp on business spending.
Separately, a closely watched survey of economists released Monday showed forecasters more generally had seen recession risks rise over the past month.
The odds of a recession in the next 12 months are nearly four-in-10 now, versus one-in-three a month ago, the Blue Chip Economic Indicators newsletter said.
Year-over-year, pending sales were down 18.4 percent, the third largest drop since the trade group began keeping such records in January 2001. Only the declines registered in August
and September were deeper.
Lawrence Yun, the trade group's chief economist, said home sales and prices should level out next year after this year's declines.
Existing home sales should hit a pace of 5.70 million in 2008 compared to an expected 5.67 million this year, NAR said. It said median home prices would likely fall 1.9 percent this year, but rise 0.3 percent in 2008 to $218,300.
This year's home price decline would be the first annual decline since the Great Depression, Yun said.
"Certainly, the market has turned .. far worse than I anticipated," he said, noting that NAR had downwardly revised its homes sales forecast several times this year.
The pending homes sales data painted a mixed picture regionally, with the Northeast seeing a 16 percent rise and the West an 8.4 percent increase. In contrast, pending sales fell 1.4 percent in the Midwest and 7.8 percent in the South.
Americana Mortgage Group President Robert Moulton, whose Long Island, New York-based mortgage brokerage serves Florida, said that state is likely responsible for a large share of the
decline seen in the South.
"All of Florida is hurting after a lot of speculative buying and now there are people with two, three houses on their hands," he said.