Housing outlook grim

Bloomberg

Fewer Americans signed contracts to buy previously owned homes in September, indicating the credit crisis will inflict more damage on the housing market.

The index of signed purchase agreements, or pending home resales, fell 4.6 percent, more than forecast, to 89.2, the National Association of Realtors said on Sunday in Washington.

The housing slump may extend well into a fourth year as banks turn away borrowers, foreclosures worsen the glut of unsold homes and job losses climb. Lower property values will keep eroding home-equity, causing consumers to retrench further and reinforcing the risk of a deeper recession. ``The outlook has deteriorated,'' said David Sloan, a senior economist at 4Cast Inc. in New York, who estimated a 5 percent drop. ``The tightening of credit conditions will push pending home sales lower. We're in quite a sharp recession, and housing is part of it.''

Economists expected pending sales to fall 3.4 percent, according to the median forecast of 30 economists in a Bloomberg News survey. Estimates ranged from a drop of 6 percent to a gain of 1 percent. The jump in August was revised up to 7.5 percent from an originally reported 7.4 percent gain. A Labor Department report today showed the U.S. unemployment rate rose to 6.5 percent in October, the highest level since 1994, and payrolls plunged by 240,000.

Economists said the figures indicate the economy is heading for the steepest decline in decades. The Realtors' group, whose data on pending sales go back to January 2001, started publishing the index in March 2005.

Northeast Slump
Three of four regions saw a drop, led by a 17 percent slump in the Northeast and a 7.9 percent decline in the South. They rose 3.7 percent in the West. Compared with September 2007, pending resales increased 1.6 percent.

Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the existing-home sales report from the Realtors.

An earlier report from Realtors showed purchases of existing homes jumped 5.5 percent in September to a 5.18 million annual pace, the highest level in a year. Foreclosure-related sales accounted for 35 percent to 40 percent of the total, it said.Sales of new houses also increased in September, according to a Commerce Department report on Oct. 27.

Today's report signals the improvement in sales may be short-lived. The lending crisis worsened last month and persistent job losses have led consumers to retrench further. Home prices will likely keep falling, extending the housing recession well into 2009, economists predict. Housing-related companies are bracing for prolonged weakness. Illinois Tool Works Inc., the maker of Duo-Fast nail guns and Wilsonart countertops, predicts home construction won't hit bottom until 2010 because of large inventories and tight lending.

``There are too many issues to be sorted out with both the inventory of existing homes as well as the mortgage market for us o see much change,'' Chief Executive Officer David Speer said in a Webcast yesterday. ``We're going to be in a reasonably long period -- four to six quarters -- before we would see the bottom.''