Contracts to buy homes barely budged in January

  • Associated Press
  • Friday, February 28, 2014 3:46pm
  • Business

WASHINGTON — The number of Americans who signed contracts to buy homes was essentially flat in January, a possible sign of a softening real estate market.

The National Association of Realtors said Friday that its seasonally adjusted pending home sales index inched up 0.1 last month to 95. The index has fallen 9 percent over the past 12 months as sales momentum has faded.

Pending sales are a barometer of future purchases: A one- to two-month lag usually exists between a signed contract and a completed sale.

Higher mortgage rates, rising prices and a tight supply of homes have restricted sales in recent months. Snowstorms across much of the country also delayed purchases. The Realtors project that sales will total 5 million this year, down from 5.1 million in 2013.

Ian Shepherdson, chief economist at Pantheon Marcoeconomics, thinks home buying could slow further through March.

“The bad news is that existing-home sales need to fall a bit further to move fully into line with the pending-sales index,” he said in a client note.

The rising costs of buying a home have contributed to a slowdown in signed contracts over the past seven months. Sales of existing homes plummeted in January to the weakest pace in 18 months, the trade group said last week.

Some of the price pressures will be eased if more homes come onto the market in the months ahead. One way to increase the supply is through the construction of new homes, a sector not measured by the Realtors’ indicator on sales.

Purchases of new homes rose 9.6 percent in January to a seasonally adjusted annual rate of 468,000, the Commerce Department said this week. That was the fastest pace since July 2008 and could lead to an uptick in construction.

More homeowners might also choose to put their properties on the market, a possibility suggested by a decline in underwater mortgages at the end of 2013, according to a report Friday by real estate data provider Zillow. Homeowners are considered underwater if they owe more on their mortgage than their home is worth.

A decline in underwater mortgages should enable more Americans to list their homes for sale because they would no longer be unloading their homes at a financial loss.

The share of mortgage holders with negative equity in their homes fell to 19.4 percent in the final three months of last year, down from 27.5 percent during the same period in 2012. Still, the negative equity rate remains four times the level of a healthy housing market.

So even if the supply of homes increases, it will be several years before the market returns to its usual conditions.

“Negative equity likely won’t be back to normal levels for another five years,” said Stan Humphries, chief economist at Zillow.

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