WASHINGTON -- The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in August as the housing recession deepened.
"The existing homes market is now in freefall," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, N.Y. "The downside from here is still substantial."
The National Association of Realtors' index of signed purchase agreements fell 6.5 per cent from the previous month, the group said yesterday. The decline was more than economists anticipated and pushed the measure to the lowest level since the organization began tracking purchases in 2001. The gauge plunged 11 per cent in July.
Higher credit costs and lending restrictions after the collapse in subprime mortgages may push the industry downturn well into 2008. Market futures contracts show the Federal Reserve will probably cut rates later this month to avert spillover from the credit squeeze and keep the broader economy expanding.
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Compared with a year earlier, pending home sales were down 22 per cent. Purchases declined in all four regions of the country, led by a slide of 9.5 per cent in the South. The smallest drop was in the West, which notched a fall of 2.7 per cent.
So far, the Fed's half-point rate cut on Sept. 18 has failed to lower mortgage rates and boost demand. Buyers have been further constrained by the tighter lending standards and the shutdown of mortgage lenders such as American Home Mortgage Investment Corp. in early August that closed off access to credit.
"Fewer contracts were being written because of mortgage-availability issues," said Lawrence Yun, a senior economist at the real estate agents group. "More than 10 per cent of sales contracts fell through at the last moment in August, primarily the result of cancelled loan commitments" from lenders.
"There is still no bottom in sight," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. "Sales will continue to fall until there is a greater price capitulation by sellers. It still appears that we have not reached market-clearing prices to reduce the inventories of unsold existing homes."
Other housing market indicators have pointed to a second leg down after concerns over subprime mortgage defaults caused credit markets to seize up in mid-August. Sales of previously owned homes fell in August to the lowest level in five years, the Realtors group reported Sept. 25. Two days later, the Commerce Department said new-home sales declined to a seven-year low and median prices dropped the most since 1970.
The stock of unsold homes rose to a record of 5.1 million in August, forcing builders to further scale back projects. Housing will continue to hinder the expansion after already reducing growth for the last six quarters, economists say.
As stockpiles climbed and sales fell, home prices in 20 U.S. metropolitan areas dropped 3.9 per cent in the 12 months through July, according to the S&P/Case-Shiller index. The decline was the biggest since record keeping began in 2001. Lower home values threaten to hurt consumer spending by preventing owners from tapping equity for extra cash.
Mounting foreclosures are adding to the problem. The number of Americans who may lose their homes more than doubled in August from a year earlier, according to a Sept. 18 report by Irvine, Calif.-based RealtyTrac Inc.
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