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2010-01-06 08:02:06
By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer Tue
Jan 5, 5:28 pm ET
WASHINGTON The number of people preparing to buy a home fell sharply in
November, an unsettling new sign that the housing market may be headed for a
"double-dip" downturn over the winter.
The figures Tuesday came after a similarly discouraging report on new home
sales, illustrating how heavily the housing market depends right now on
government help.
In October, buyers raced to get contracts signed in time to take advantage of a
tax credit for first-time homeowners that was set to expire. It has since been
extended into spring and now prospective buyers are taking their time.
The National Association of Realtors said its seasonally adjusted index of
sales contracts fell 16 percent from October to November, ending nine months of
gains. Economists surveyed by Thomson Reuters had expected only a 2 percent
drop.
"This was bound to happen at some point, although not by this much," wrote
Jennifer Lee, senior economist with BMO Capital Markets. She added: "Gulp."
When the tax credit expires this spring and the government phases out programs
to keep mortgage rates low, the housing market will have to stand on its own.
Many economists doubt it can.
"We're just going to languish at the bottom," said Anna Piretti, senior
economist at BNP Paribas.
The last housing downturn helped drag the nation into the worst recession in
decades. The expected dip in home sales and prices this winter appears to pose
less of a threat to the broader economy.
Orders to U.S. factories, for example, posted a big gain in November, the
Commerce Department said Tuesday. So while the housing market remains
vulnerable, makers of steel, computers and chemicals are mounting a
surprisingly robust rebound.
"We expect housing to just limp along even as the rest of the economy is
growing fairly strongly," said Nomura Securities economist Zach Pandl.
Stocks were mixed as the reports offered conflicting signals about the economy.
The Dow industrials slipped 0.1 percent, while the broader Standard & Poor's
500 index rose 0.3 percent to its highest close since Oct. 1, 2008.
The tax credit is worth up to $8,000 for first-time homebuyers and was set to
expire Nov. 30. Congress extended it through the end of April and broadened it
to include a credit of up to $6,500 for buyers who relocate.
Typically, there's a lag of one to two months between when the contract is
signed and when the sale closes. To meet the original deadline for the tax
credit, buyers would have needed to submit a signed sales contract by the end
of October at the latest.
The Realtor group said it expected homebuyers to start responding to the
extension by early spring, suggesting that sales will pick up again but fall
back later in the year, once the government support is gone.
In addition, the Federal Reserve is buying up $1.25 trillion in mortgage-backed
securities to help keep interest rates at or near record lows. That program is
scheduled to run out at the end of March, though a sudden jump in rates could
force the Fed to extend it.
"We don't want to see mortgage rates rise yet," said Jerry Smith, associate
broker with Re/Max Professional outside Denver. "And we certainly don't want to
see unemployment get any worse than it is."
For November, new sales contracts were down 3 percent in the West, 15 percent
in the South and 26 percent each in the Northeast and Midwest.
The housing market had been rebounding from the worst downturn in decades,
helped by the federal intervention. Sales of existing homes surged in November
to the highest level in nearly three years, but analysts expect a drop of 10 to
20 percent from November to December.
The most pessimistic analyst forecast came from Daniel Alpert, managing
director of the New York investment bank Westwood Capital LLC. He expects
prices to fall to 10 percent below the lows of last spring when the government
help goes away.
Nevertheless, in some particularly hard-hit areas real estate agents are
confident the worst days of the housing bust are over.
Charlotte Wester, a real estate agent with US Preferred Realty in Mesa, Ariz.,
said homes are so affordable one house in her area sold for under $50,000
last fall that houses are drawing multiple bids and often selling over the
listing prices.
"I can't see how our prices could get any cheaper," she said.
___
AP Economics Writer Martin Crutsinger contributed to this report.