Existing Home Sales in U.S. Drop 4.6%

Sales of pre-owned homes in September dropped indicating that few American are signing new contracts.  This signals more trouble for the housing market as the credit market tightens.

The National Association of Realtors reported that the purchase agreements sales index dropped by 4.6 percent, overshooting official forecast.  

Housing Crisis Enters 4th Year

The housing market crisis is expected to enter its fourth year.  Banks continue to deny loans to borrowers and the housing glut worsens due to increasing foreclosures and accelerating job cuts.  Property values will continue to sink thus further devaluing home equities.  This forces home owners to retrench leading to increasing risk of recession.  

David Sloan of 4Cast Inc. said that the entire picture continues to become gloomier.  Sloan further added that the worsening credit crunch will pull down home sales which indicate sharp recessionary trends with the housing sector as a major part.  4Cast Inc. estimated a 5 percent drop earlier.

A 3.4 percent was expected by economists on pending homes sales based on a survey conducted by Bloomberg with 30 economist-respondents.  Official estimates have ranged from an increase of 1 percent to a fall down to 6 percent.  The August spike was revised to 7.5 percent from 7.4 percent reported earlier.

Deeper Declines Expected

Economists said the country is headed for a deeper plunge as the Labor Department reported an increase in unemployment to 6.5 percent in October.  The unemployment figure is the highest ever recorded since 1994 as payrolls continue to roll down registering at 240,000.

The National Association of Realtors started issuing homes pending sales index since 2005.  The group has data going back to 2001.

Three regions led the decline in homes sales.  The Northeast suffered a 17 percent decline while the South registered a 7.9 percent drop.  The Western regions however experienced a climb of homes sales by 3.7 percent.  Year on year records however showed a 1.6 percent.  

Pending homes re-sales are top indicator showing new contract signing.  Closing transactions are tallied based on current homes sales data of realtors.  

Data Spikes Shot-lived

The Realtor’s report earlier showed an increase of 5.5 percent in existing home sales for September.  Sales related to foreclosures account for 40 percent of the total data.  For new houses sales, the US Commerce Department also reported an increase based on its October 27 data.

The recent reports may show a temporary improvement in homes sales and could be short-lived.  The credit market continues to tighten pushing homeowners to retrench.  Home prices are expected to slide further as equities erode and jobs security deteriorates.  Economists believed that the housing recession will spill over to 2009.