Pending Home Sales Decline
The National Association of Realtors reported Thursday that fewer Americans signed contracts to purchase homes in August despite interest rates near historic lows. The report is further evidence of the challenges facing policymakers as they try to help boost the struggling housing market. The NAR’s pending home sales index, which is based on contracts signed to buy homes in a given month, fell 1.2 percent in August to a reading of 88.6, its lowest level since April.
While a decline is still a decline, the drop last month was smaller than expected, as analysts taking part in a recent Reuters poll projected pending sales would fall by 1.8 percent, on average. And, analysts believe that Hurricane Irene, which battered the East Coast toward the end of the month, halting nearly all economic activity, including house hunting, played at least some part in the slowdown. The NAR’s data support that assertion, as pending sales in that region fell by a whopping 5.8 percent.
Also holding back improvement in the housing market, NAR chief economist Lawrence Yun says, is an unwillingness of banks to ease lending standards that were tightened after the economic collapse. Bad mortgages bundled into securities and then sold as investments contributed heavily to the financial collapse in 2007, and banks responded by raising minimum credit score and down payment requirements for mortgages.
Last week, the Federal Reserve took action to stimulate activity in the housing market by launching Operation Twist, a program designed to keep long-term interest rates low. As a result of the program, mortgage rates fell to their lowest levels on record this week, and analysts believe they will go even lower in the coming weeks.