WASHINGTON -- Fewer Americans signed contracts in June to buy previously owned homes, showing rising mortgage rates are beginning to restrain the housing market.
The index of pending home sales dropped 0.4 percent, less than forecast, to 110.9 in June after climbing a month earlier to the highest level since December 2006, figures from the National Association of Realtors showed today in Washington. The median forecast in a Bloomberg survey of 40 economists called for a 1 percent decline.
Lean inventories of cheaper properties and mortgage rates that have climbed about 1 percentage point since early May are making it harder for some Americans to purchase houses. At the same time, housing will probably benefit from improvement in the labor market and higher home values that encourage more listings.
“I would worry if there is a sustained drop in these sales numbers, but we don’t anticipate that,” Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, said before the report. “Up until recently, you could characterize the housing market with one word -- and that’s sizzling. Housing is definitely playing a locomotive role in the economy.”
Estimates in the Bloomberg survey for June pending home sales ranged from a decline of 6.5 percent to an increase of 5 percent after a previously reported 6.7 percent advance in May.
The index level for pending home sales decreased from a revised 111.3 in May on a seasonally-adjusted basis. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the Realtors group.
“Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” the group’s chief economist Lawrence Yun said in a statement. “The persistent lack of inventory also is contributing to lower contract signings.”
Economists consider pending home sales a leading indicator because they track contract signings. Existing home sales are tabulated when a contract closes, usually a month or two later.
Today’s Realtors’ report showed pending home sales increased 9.1 percent from June 2012 on an unadjusted basis.
Two of four regions showed a decrease in contract signings from a month earlier, including a 2.1 percent drop in the South and a 1 percent decline in the Midwest, today’s report showed.
The average rate on a 30-year fixed mortgage was 4.31 percent last week, up from 3.35 percent in the period ended May 2, according to figures from Freddie Mac. In November, the average rate reached a record low of 3.31 percent.
At the current rate, the monthly payment on a $200,000 30- year loan is about $991 compared with $877 in November.
The increase in borrowing costs, reflecting expectations that the Federal Reserve will begin dialing back record monetary stimulus later this year, has started to affect demand for new homes.
PulteGroup Inc. and D.R. Horton Inc., the largest U.S. homebuilders, reported fewer-than-expected orders. Bloomfield Hills, Michigan-based PulteGroup said second-quarter orders fell 12 percent on a lower community count. D.R. Horton said orders increased 12.2 percent, below analysts’ forecast.
There’s “no question” rising rates affected sales, D.R. Horton Chief Executive Officer Donald Tomnitz said last week.
Purchases of previously owned homes fell 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported on July 22. The pace was still the second- strongest since November 2009. The median price of an existing home climbed 13.5 percent to $214,200 last month from $188,800 a year earlier, while the number of properties available was the fewest for any June since 2001.
Job growth will probably help keeping housing demand from faltering. Payrolls expanded by 195,000 workers for a second month in June.
The housing recovery has potential to boost companies like Lumber Liquidators Holdings Inc. Daniel Terrell says the Toano, Va. based hardwood flooring retailer has room to take greater advantage of coming improvements.
“We are definitely seeing a firming in the housing market,” Terrell said in a July 24 earnings call. “We still believe we’re not seeing a full-scale recovery or a tsunami of pent-up demand come yet, but we’ve got low share.”