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Pending home resales fall 3.2%

Other economic data show wholesale inventories rose twice as fast as forecast.

September 10, 2008|From Bloomberg News

Fewer Americans signed contracts to purchase previously owned homes in July as harder-to-get financing kept would-be buyers from taking advantage of lower prices.

A separate report showed that inventories at U.S. wholesalers piled up twice as fast as forecast in July as their sales slid.

The Commerce Department said that wholesale inventories rose 1.4%, led by higher stockpiles of automobiles, machinery and petroleum, after an increase of 0.9% in June.

Sales dropped 0.3%, the most since February.

The National Assn. of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2% to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8% below year-ago levels, reflecting declines in every region except the West, which includes California.

Today's housing figures help explain why the government took over Fannie Mae and Freddie Mac two days ago. Policymakers are aiming to stem the increase in mortgage rates triggered in part by the turmoil that engulfed the two companies, which make up almost half of the $12 trillion U.S. mortgage market. Rates have dropped since Treasury Secretary Henry M. Paulson's intervention.

"The market is still showing a lot of fragility," said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, N.C., who forecast the pending sales gauge would drop 3%. "The credit crunch is causing some of these borrowing costs to remain higher and that's part of the reason people are hesitant to jump in."

Stocks dropped and Treasuries rose. The Standard & Poor's 500 Stock Index lost 3.4%. Benchmark 10-year Treasury notes yielded 3.57%, down from 3.68% on Monday.

Economists had projected the home-sales index would fall 1.5%, according to the median of 39 forecasts in a Bloomberg News survey.

Thirty-year fixed-rate mortgages averaged 6.29% in July, up from an average of 5.81% in the first half of the year, according to Bankrate Inc. Rates fell to 5.88% on Monday.

As home-loan losses mount, banks are reducing lending. Wachovia Corp. in June stopped offering option adjustable-rate mortgages, which let borrowers skip part of their payment and add the balance to principal. Chief Executive Robert Steel said Tuesday that the Charlotte, N.C., bank next year would cut $1.5 billion of expenses as it's "tapping the brakes" on risk.

Pending resales are considered a leading indicator because they track contract signings.

Closings, which typically occur a month or two later, are tallied in a separate report.

"The housing correction poses the biggest risk to our economy," Paulson reiterated Sunday when he announced the takeovers of Fannie and Freddie. The Treasury will also start purchasing mortgage-backed securities issued by the two companies to "support the availability of mortgage financing for millions of Americans," he said.

Figures on August existing home sales are due from the Realtors group later this month. Purchases in July rose 3.1% to a 5-million annual pace, with at least one-third of the purchases coming from foreclosed properties.

At the July sales rate, it would take 11.2 months to sell all the houses on the market, about twice the supply that reflects a balanced market, according to the agents' group.

Other measures also show how bank seizures may push down home prices and suppress sales. Foreclosures increased to the fastest pace in almost three decades during the second quarter, the Mortgage Bankers Assn. in Washington said in a report last week.

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