WASHINGTON – The number of Americans who signed contracts to buy homes fell in October for the fifth straight month. Higher mortgage rates, price increases and the 16-day partial government shutdown held back sales.
The National Association of Realtors said Monday that its seasonally adjusted pending home sales index dipped 0.6 per cent to 102.1. That’s the lowest level since December. September’s reading was revised slightly higher to 102.7.
There is generally a one- to two-month lag between a signed contract and a completed sale. The drop suggests final sales will remain weak in the coming months.
The Realtors’ group said the shutdown prevented the IRS from verifying incomes, a critical part of the mortgage-approval process. The group said that 17 per cent of Realtors reported delays.
Sales may rebound a bit in November as purchases delayed by the shutdown are completed. But sales are not expected to pick up much after that.
“The recovery in home sales has clearly at least stalled,” said Jim O’Sullivan, chief U.S. economist with High Frequency Economics, a forecasting firm. “With other data showing the recovery in the labour market still on track, and confidence moving up again, we expect home sales to start trending up again in coming months.”
A limited supply of homes has pushed up prices in the past year. Prices of existing homes jumped 12 per cent in September from the previous year, according to real estate data provider CoreLogic.
Signed contracts fell sharply in the West, where investors have snapped up foreclosed homes and bid up prices in the past year. Signed contracts also slipped in the South, another area hit hard during the crisis.
But contracts rose last month in the Northeast and Midwest.
Mortgage rates have eased but remain nearly a point higher than they were in the spring. The average rate on a 30-year mortgage fell to 4.22 per cent last week from 4.35 per cent the week before. That’s down from a peak in August of nearly 4.6 per cent and still low by historical standards.
Last week, the Realtors said sales of existing homes fell 3.2 per cent in October to a seasonally adjusted annual rate of 5.12 million, down from a pace of 5.29 million in September and the slowest since June. Sales at an annual rate of about 5.5 million are consistent with a healthy market.
Sales should rise about 10 per cent this year to 5.1 million, the Realtors’ group predicts. About 4.67 million homes were sold in 2012. But it expects sales will be roughly flat next year.