US home resales fall more than forecast

Losses stemming from mortgage crisis may reach US$1 trillion, says IMF

The number of Americans signing contracts to buy previously owned homes declined more than forecast in February, indicating the US real-estate recession will extend into a third year.

The National Association of Realtors’ index of signed purchase agreements decreased 1.9 per cent to 84.6, the lowest reading since records began in 2001, the group said yesterday. The drop follows a revised 0.3 per cent increase in January.

Falling property values and stricter lending standards are prompting prospective buyers to delay purchases, a sign the housing slump hasn’t touched bottom. Mounting home foreclosures and related losses at financial firms may keep the Federal Reserve cutting interest rates to soften the downturn.

‘I think looking for a bottom in housing is a little premature given the fact we are just beginning to see the first wave of foreclosures,’ Drew Matus, a senior economist at Lehman Brothers Holdings Inc in New York, said in a Bloomberg Television interview. ‘Prices are likely to come down and we expect that to continue for some time.’

Economists had forecast the index would fall one per cent from an unchanged reading previously reported for January, according to the median of 29 estimates in a Bloomberg News survey.

Projections ranged from a decline of 1.5 per cent to a 1.5 per cent gain. Compared with a year earlier, the measure was down 21 per cent.

Stocks remained down following the report and Treasury securities were little changed. The Standard & Poor’s 500 index was down 0.5 per cent to 1,366.2 at 10.17am in New York.

The Fed was due to release minutes of its March 18 policy meeting at 2pm yesterday. In the first 11 weeks of this year, the central bank cut the benchmark lending rate two percentage points, the fastest drop in two decades. Analysts will be eager to see how officials viewed the unravelling of money markets that prompted them to pass new liquidity backstops.

Former Fed chairman Alan Greenspan said yesterday the drop in US home prices will probably end ‘well before’ early next year as the number of houses on the market diminishes, aiding an economic rebound.

The International Monetary Fund yesterday said financial losses stemming from the mortgage crisis may approach US$1 trillion, citing a ‘collective failure’ to predict the breadth of the crisis.

The Realtors forecast existing-home sales in 2008 would fall to 5.39 million compared with 5.65 million last year. Purchases of new homes will decline to 576,000 from 775,000 in 2007, the group said yesterday.

The pending figures are considered a leading indicator of resales because they track contract signings. The purchase data, due later this month, reflects closings, which typically occur one or two months later.

Sales of existing homes unexpectedly rose in February from a nine-year low, the Realtors group said on March 24. Purchases increased 2.9 per cent to an annual rate of 5.03 million.

Sales of existing homes are down 31 per cent from their September 2005 peak, while inventories are at a 9.6-month supply. The group has said a five to six-month supply reflects a balanced market.

The housing slump has hurt the economy in various ways. Declines in residential construction have reduced gross domestic product since early 2006 and now falling home prices are curbing consumer spending.

The drop in values reduces household wealth and limits the amount of equity owners can tap to boost spending. — Bloomberg

Source : Business Times - 9 Apr 2008