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Existing Home Sales In U.S. Rose Unexpectedly In June

The number of contracts to purchase previously owned U.S. homes unexpectedly rose in June as buyers tried to take advantage of lower prices and borrowing costs.

The 2.4 percent rise in the index of pending home resales followed an 8.2 percent May gain, the National Association of Realtors said today in Washington. Economists forecast a 2 percent drop, according to the median estimate in a Bloomberg News survey.

Unemployment above 9 percent and an expanding pipeline of foreclosures mean it may take years to clear the overhang of housing inventory, a sign the market is far from recovery. The prospect of contract cancellations due to stricter underwriting standards and low appraisals means some signings may not translate into closings.

“Cancellation rates are higher, which means this gain may not entirely filter through to existing-home sales,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “The economic background is still weak and uncertainty is high about the outlook, which will keep homebuyers on the sidelines.”

Estimates for pending home sales ranged from a drop of 5 percent to an increase of 8 percent, according to 39 forecasts in the Bloomberg survey. Pending sales rose 17 percent from June 2010.

Stocks gained after three days of declines for the Standard & Poor’s 500 Index. The S&P 500 rose 0.3 percent to 1,309.31 at 10:26 a.m. in New York. The S&P Supercomposite Home Builders Index climbed 3.6 percent, the first gain in five days.

Another report today showed weakness in the labor market may be starting to abate. First-time applications for unemployment insurance dropped by 24,000 to 398,000 last week, the fewest since April, the Labor Department said. Economists projected 415,000 claims, according to the median projection in a Bloomberg survey.

Consumer Confidence

Joblessness and falling home values may help explain a drop in consumer confidence last week. The Bloomberg Consumer Comfort Index was minus 46.8 in the week to July 24, the lowest since May, compared with minus 43.3 the prior week. Six percent of those surveyed said the economy was in good shape, the fewest since April 2009.

Pending sales climbed 6.4 percent in the West and 4.4 percent in the South. They fell 3.7 percent in the Midwest and 0.4 percent in the Northeast.

Today’s report showed a 90.9 index level for pending home sales on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contracts in 2001, when record-keeping began, and coincides with “historically healthy” home-buying traffic, according to the NAR.

Home Values

Falling home prices are hurting consumer confidence and demand while also making it difficult to come up with accurate home appraisals for lenders. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in May from a year earlier, the biggest 12-month drop since November 2009, the group reported this week.

Another Realtors’ report on July 20 showed sales of previously owned homes, which make up about 95 percent of the market, dropped in June to a seven-month low. Purchases decreased 0.8 percent to a 4.77 million annual rate. Cancellations jumped to 16 percent from 4 percent the prior month.

The increase in cancellations is partly due to home appraisals that are coming in lower than the values listed on contracts, the group said. As banks respond by reducing the amount they’re willing to lend for the purchase, it “causes the deal to unravel,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Pending sales track contract signings while previously owned sales reflect the closings a month or two later.

Distressed Sales

Distressed deals, composed of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for about 30 percent of the total of closings in June.

Existing-home sales have fallen since reaching an annual peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that led to an 18-month recession. Purchases slumped to a 13-year low of 4.91 million last year.

Lender delays in processing home-loan defaults, while crimping current distressed transactions, will push as many as 1 million U.S. foreclosures from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said this month. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom.

“Supply is a foregone conclusion to stay high for the next couple of years as foreclosure inventory continues to be there on the resale market,” Richard Dugas, chief executive officer at PulteGroup Inc., the biggest U.S. homebuilder, said in a teleconference last month. “We’re not predicting that it gets better anytime soon.”