Pending Sales of Existing Homes in U.S. Fall 16% as Buyers Wait for Credit
By Bob Willis and Courtney Schlisserman
[Bloomberg] -- Contracts to buy previously owned U.S. homes plunged more than anticipated in November, while factory demand beat forecasts, showing manufacturing will lead the economy in coming months as the housing recovery cools.
The index of signed purchase agreements, or pending home sales, dropped 16 percent as Americans waited for a first-time buyer tax credit to be extended, the National Association of Realtors said today in Washington. Factory orders rose 1.1 percent, more than twice as much as projected, according to figures from the Commerce Department.
The manufacturing report showed companies boosted spending on new equipment toward the end of 2009, signaling growing confidence in the economic recovery that may soon lead to more hiring. The drop in November pending home sales followed a 42 percent surge over the previous 10 months as households rushed to take advantage of the government incentive.
"Chances are you are going to see much more of a rebound in business investment, so there is more strength ahead in manufacturing orders," said James O'Sullivan, chief economist at MF Global Ltd. in New York. The drop in pending home sales "reflects partial payback for the earlier surge rather than a sign of new underlying weakness."
Most stocks rose after the reports. The Standard & Poor's 500 Index climbed 0.1 percent to 1,134.48 at 12:24 p.m. in New York. Treasury securities rose.
Anticipated Drop
Pending home sales were projected to fall 2 percent, according to the median of 35 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 12 percent to a 3.9 percent increase.
President Barack Obama on Nov. 6 extended an $8,000 first-time buyer credit that was due to expire at the end of the month and expanded it to include current homeowners. 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.
"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, New Jersey, whose forecast of a 12 percent drop was the closest in the Bloomberg survey. After the extension expires, housing will have "some kind of a mild recovery," he said.
Compared with November 2008, pending sales were up 19.3 percent, the real estate group said.
Broad-Based Decline
All four U.S. regions registered decreases in November, led by 26 percent slumps in the Northeast and Midwest. Contract signings dropped 15 percent in the South and 2.7 percent 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.
Transactions had to close by Nov. 30 for buyers to qualify for the tax credit. Sales of existing homes rose 7.4 percent in November to a 6.54 million annual rate, the highest level in almost three years, the Realtors group said on Dec. 22.
The median estimate of 58 economists surveyed projected a 0.5 percent gain in factory orders. Forecasts ranged from a drop of 1 percent to an increase of 1.5 percent. The Commerce Department revised the October advance in bookings up to 0.8 percent from a previously reported 0.6 percent.
Excluding Transportation
Excluding demand for transportation equipment, which tends to be volatile, orders climbed 1.9 percent, the biggest gain since June.
Bookings for capital goods excluding aircraft and military gear, a measure of future business investment, increased 3.6 percent, up from the previously reported 2.9 percent increase. Shipments of those goods, used to calculate gross domestic product, climbed 1.1 percent compared with 0.8 percent reported earlier.
Business spending will probably "grow mightily this year as companies reinvest in their business, upgrading a depreciated stock of capital," Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, wrote in a note to clients.
Demand for computers and electronic products increased 4.9 percent, the most since February, signaling companies may be gaining confidence in the recovery.
Payroll Forecast
Sales gains are helping to bring an end to the almost two-year drop in payrolls. The U.S. lost 11,000 jobs in November, the fewest since the recession began in December 2007, according to Labor Department data released last month. Economists surveyed project the government will say on Jan. 8 that payrolls were unchanged in December.
Caterpillar Inc., the world's largest maker of bulldozers and excavators, will bring back some laid-off workers this year as sales improve, Chief Executive Officer Jim Owens said in a Dec. 11 Bloomberg Television interview.
"We'll gradually begin to call people back and to rebuild our overall sales and ability to ship product," Owens said in a Dec. 11 interview with Bloomberg Television. "I think it will gradually begin to pick up as 2010 unfolds."
To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net; Courtney Schlisserman in Washington at cschlisserma@bloomberg.net.
