Pending Home Sales Plunge to Seven-Year Low

Pending sales of existing U.S. homes dropped to a seven-year low in November, data showed Tuesday, as rising job losses and a deepening economic recession kept potential house buyers on the sidelines.

AP Home sales

The National Association of Realtors Pending Home Sales Index, based on contracts signed in November, dropped 4.0 percent to 82.3, the lowest level since the series started in 2001. That was worse than economists' expectations for a 0.1 percent drop.

November's reading was 5.3 percent lower than a year-ago and October's pending home sales index was revised down to 85.7.

"Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November,'' said Lawrence Yun, NAR chief economist. "December's housing market activity could be comparably lower due to ongoing problems in the economy.''

U.S. stock indexes trimmed gains on the data, which provided more evidence that the year-long recession was on track to be the deepest since the 1981 economic contraction which lasted about 16 months.

The economic downturn, triggered by the collapse of the U.S. housing market, has been marked by massive job losses and a record decline in consumer confidence.

However, economists are cautiously hopeful that president-elect Barack Obama's proposed massive spending plan, together with steps by the Treasury and Federal Reserve to lower mortgage rates will support the housing sector later this year.

"The housing market is always quiet at the turn of the year so what matters now is the performance through the spring, when activity usually rises,'' said Ian Shepherdson, chief U.S. economist at HFE in New York.

"With mortgage rates dropping sharply we are cautiously optimistic that sales will not fall much further and should even rebound a bit by mid-year. But the immediate outlook is bleak,'' he said. (Watch the accompanying video for more on the numbers...)

The NAR said November's pending home sales data did not capture the impact of mortgage interest rates declining to near 50-year lows in December. It expects the 30-year fixed-rate mortgage to hold steady through the first half of 2009 year and rise slightly in the second half.

NAR said its housing affordability index, which looks at the relationship between home prices, mortgage interest rates and family income, was on track to match a record high set in 1972.

November's pending home sales index was dragged down by worsening market conditions in key regions. In the Northeast, the pending home sales index dropped 7.2 percent to 63.2 in November, while the index fell 6.7 percent to 74.2 in the Midwest.

In the South the index declined 2.2 percent to 85.3 and in the West it was down 2.4 percent to 101.2.

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