September pending home sales fall
The worsening financial crisis stops bargain hunters in their tracks.
NEW YORK (CNNMoney.com) -- Homebuyers pulled back some more in September amid turmoil in the financial markets.
The Pending Home Sales Index for the month fell 4.6% to 89.2 after climbing 7.4% in August, according to the National Association of Realtors (NAR). Still, the index was up 1.6% from a year ago.
NAR said the dip in sales was tempered by a sharp decline in prices, which fell 9% year-over-year in September. Also propping up sales to some extent were affordable mortgage interest rates, which dipped below 6% for a 30-year fixed-rate loan during the month, according to Freddie Mac (FRE, Fortune 500).
It doesn't look like things will improve soon.
"Right now, we're in a recession, and unemployment will increase through 2009," said NAR chief economist Lawrence Yun. "Consumer spending has halted and businesses are very cautious of expanding. It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly."
In contrast to Yun, The National Bureau of Economic Research - which is the organization whose definition of a recession is most widely accepted - has yet to call the current downturn a recession.
Yun expects that the economy will continue to deteriorate, with the gross national product contracting through the end of 2008 and first quarter of 2009.
"The depth of the recession depends entirely on housing," he said. "With sufficient housing stimulus, the recession will be shallow. If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation's output and income in a severe recession."
One bright spot: NAR reports that the drop in home prices, combined with low interest rates, have brought home buying affordability to 2003 levels. But the improved affordability may not be enough to quickly bring housing all the way back into recovery.
"To me [the pending home sales drop] is another indication that we haven't hit bottom yet in the housing market," said Nariman Behravesh, chief economist for Global Insight.
The financial market turmoil and the freezing of lending have slowed home sales. "A lot of people simply can't get a mortgage these days and that's a key element," he said.
Yun, however, noted that pending home sales did increase in the regions that have already seen massive price declines.
September sales volume climbed 3.7% in the West, and was 39.5% above a year ago. In the Midwest the index inched down 0.7% to come in 3.1% below September 2007. Pending sales in the South dropped 7.9% for the month and were down 11.3% compared with a year ago. In the Northeast, the index dropped 16.8% for the month and 9.4% year-over-year.
With the economy slowing, Yun revised his forecast for existing home sales downward to 5.02 million for all of 2008. Last month, he forecast sales of 5.04 million existing homes.