U.S. November Pending Sales of Existing Homes Falls 2.5%

Contracts to buy previously owned U.S. homes fell in November, a third straight decline that adds to evidence the U.S. housing market is slowing heading into 2006.

The index of signed purchase agreements, or pending home resales, fell 2.5 percent to 120.6, the National Association of Realtors said today in Washington. That follows a revised reading of 123.7 in October and a record 129.2 in August.

Rising home prices and 30-year mortgage rates that climbed from a month earlier may have put homes out of reach of some buyers in November. Home affordability dropped to a 14-year low in the third quarter, and economists expect house sales to decline this year after setting a record in 2005.

``The extended boom in home sales appears to have run its course,'' in 2006, said Robert Mellman, an economist at JPMorgan Chase Bank in New York, before the report. ``The housing market frenzy that enticed potential homebuyers to rush into purchases before prices moved still higher has now apparently broken.''

Pending homes sales were forecast to fall 1 percent, the median prediction in a Bloomberg News survey of seven economists, from an originally reported 123.8. Estimates ranged from a decline of 0.5 percent to 1.5 percent. The index averaged 125.3 in the first 10 months of last year, compared with 120 in the same period of 2004. Its base value of 100 represents the 2001 average.

The November pending resales index fell in three of the four regions compared with the prior month. Resales declined 8.3 percent in the Northeast, 5.1 percent in the West and 1.9 percent in the South. Contract signings rose 3.4 percent in the Midwest.

Mortgage Rates

Borrowing costs have risen as the Federal Reserve has increased its benchmark interest rate to contain inflation. The Fed on Dec. 13 raised its overnight lending rate to 4.25 percent, the 13th straight increase. Thirty-year mortgage rates rose to an average of 6.33 percent in November from 6.07 percent a month earlier and 5.73 percent in November 2004.

At November's average, monthly costs on a $100,000 loan would be $620.93. When mortgage rates were at a four-decade low of 5.21 percent in June 2003, the cost was $549.73 a month.

Rising rates and higher home prices caused the Realtors' affordability index to drop to 117.8 in the third quarter, the lowest since the third quarter of 1991. Figures greater than 100 suggest households have the income needed to purchase a property at the median home price.

Faltering Sales

Sales of new and previously owned homes, which the Realtors predicted would set a record in 2005, showed signs of faltering late in the year. Sales of existing homes fell to an eight-month low in November, leaving the number of houses on the market at the highest level since 1986, while November new home sales fell by the most in 11 years, separate reports last month showed.

The pending home sales index tracks contract signings for previously owned homes. Closings are tracked by the existing home sales index and reflect deals begun a month or two earlier.

Resales account for about 85 percent of total sales, with new home sales accounting for the rest.

Home construction, which contributed 0.43 percentage point to economic growth of 4.1 percent in the third quarter, may add less to growth in coming months, economists said.

The National Association of Home Builders/Wells Fargo's index of builder confidence in December dropped to the lowest since April 2003, the Washington-based association said last month.

``The latest economic reports confirm the early stages of a decline in home sales, and an associated slide in residential construction activity, is just a matter of time,'' said Mellman.

The Realtors' association forecasts annual sales of new and existing homes will fall 3.8 percent to 8.068 million in 2006 from a year earlier. It predicts the 30-year fixed mortgage rate will rise to an average of 6.3 percent in the first quarter of this year and to 6.6 percent in the fourth quarter.

The pending resales index, which includes condominiums and co-ops as well as single-family houses, was started by the Realtors in March.