Pending Home Sales Increase in October; Construction Spending is Flat
Post Date: December 1, 2009
Some good news for real estate today: The number of buyers who have signed contracts to buy a home has risen for nine months in a row, according to a national index.
The Pending Home Sales Index — which is based on the number of signed monthly contracts as tallied by the National Assn. of Realtors in Washington — increased 3.7% in October from September’s reading of 114.1. Today’s results put the indicator 31.8% above October 2008, the biggest annual increase recorded since the group began tracking pending home sales in 2001.
Nevertheless, home sales could dip in coming months after a rush of consumers motivated by the initial Nov. 30 expiration of an $8,000 tax credit for first-time buyers slows during the typically sluggish winter months. Congress last month extended and expanded that credit through April, but it could take time for that extension to pump life into the market, said Lawrence Yun, chief economist for the Realtors group.
“The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months,” he said. “Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.”
Critics of the credit and its expansion (to higher income levels and to people who have already owned a home) have argued that it is a waste of money going to people who would have bought a home anyway and that it has only served to temporarily increase home prices.
In other news, the government said construction spending during October was flat when compared with the prior month.
Construction spending in October was estimated at a seasonally adjusted annual figure of $910.8 billion, nearly the same as the revised September estimate of $910.4 billion. The October figure is 14.4% below the October 2008 estimate of $1,064.1 billion.
Patrick Newport, U.S. economist for IHS Global Insight, said in a note to clients this morning that the slowdown in construction spending probably was due to the initial expiration of the tax credit.
“Going forward, single-family starts should continue to improve because inventories of new homes have fallen to their lowest level since 1972, and will require restocking and because the household formation rate will increase as the economy starts adding jobs in 2010,” Newport wrote.
The report also underscored the collapse in the market for rental homes, he said. That market is being hit by tight credit, a surplus of property due to overbuilding during the boom years and because more and more renters are becoming homeowners given the steep drop in home prices.