Pending home sales fell 11.6 percent from March to April and were down 26.5 percent from a year ago, when homebuyers were rushing to beat the expiration of federal homebuyer tax credits, according to the National Association of Realtors’ Pending Home Sales Index.
The index, which tracks homes under contract, is a leading indicator, and the latest data suggest home sales will drop off in May and June.
NAR chief economist Lawrence Yun said the trend in pending home sales is "disappointing," implying a slower-than-expected market recovery in coming months.
Yun said rising oil prices slowed the economy in April — a view shared by other analysts — and he also blamed bad weather.
The magnitude of the fall in pending home sales "is larger than can be implied by broad economic factors, so we need to see if it’s just a one-month aberration," Yun said in a statement.
The index showed pending home sales in the Northeast were up 1.7 percent from March to April, but down 33.4 percent below a year ago.
In the Midwest, April pending home sales were down 10.4 percent from March and 30.2 percent from a year ago.
Pending home sales in the South dropped 17.2 percent from March and 27 percent from a year ago.
In the West, pending home sales were down 8.9 percent from March and 16.9 percent from a year ago.
For the long term, Yun said tight credit is the primary factor holding back the market.
"No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow," Yun said.
NAR had previously reported that sales of existing homes were down 0.8 percent from March to April, to a seasonally adjusted annual rate of 5.05 million, a 12.9 percent drop from a year ago.
According to the latest estimates from the Census Bureau, sales of newly constructed single-family homes climbed 7.3 percent from March to April, to a seasonally adjusted annual rate of 323,000, a 23.1 percent drop from a year ago.
Housing weak link in recovery
In their latest analysis of the economy and mortgage markets, economists at Fannie Mae said that despite a weak first quarter, they expect the recovery to remain on track, although housing will continue to be a weak link.
The strength of April job gains showed that the labor market is gaining momentum, and that economic growth should pick up from the 1.8 percent annual growth posted in the first quarter.
Although layoffs of state and local government workers continue to be a drag on overall employment, private payrolls are growing as employers have trouble squeezing more out of their existing workforce.
"We appear to be in the midst of a transition from productivity-led growth to an expansion supported by sustainable job gains," Fannie Mae economists said.
The unemployment rate is likely to remain above pre-recession levels for some time, as millions of workers who’d lost hope of finding a job — and are therefore not counted by the government as unemployed — are expected to return to the workforce.
But if oil prices trend down and job growth continues, economic growth should remain above 3 percent for the rest of the year, Fannie Mae economists said. That, despite the fact that new-home construction — which has led the nation out many past recessions — is expected to remain weak.
"While weakness in housing in the first quarter may have been exaggerated by the weather, a meaningful housing recovery this year is not expected," Fannie Mae economists said. "After being a drag on growth for five consecutive years, we expect residential investment to add just slightly to growth this year."
Builders remain pessimistic as new homes continue to face competition from distressed sales, and home prices are showing renewed signs of weakness, Fannie Mae economists noted.
"The large price discounts associated with the rising distressed share also serve to depress appraisal values, adding difficulties to the underwriting process," Fannie Mae economists said. "Deteriorating expectations of home prices also act to persuade increasing numbers of potential homebuyers of nondistressed properties to remain on the sidelines."
Employment gains should provide an upside for housing markets, by helping boost household formation. But in the current environment, newly formed households are more likely to be renters than owners, Fannie Mae economists said.
After peaking at 69.2 percent in the fourth quarter of 2004, the percentage of American households that own their own homes has declined to 66.4 percent during the first quarter of this year — the lowest rate since 1998.
"It is likely that the homeownership rate will continue to decline further, given that lending standards are not likely to return to conditions seen during the housing boom anytime soon and that the cost of obtaining a mortgage is likely to increase further going forward," Fannie Mae economists said.
Although anecdotal evidence from the Federal Reserve’s surveys of loan officers suggest banks have eased lending standards for most types of loans in the last several months, residential mortgage loans were an exception, Fannie Mae economists said.
The number of mortgages 90 days or more past due or in the process of foreclosure remains elevated — the latest numbers from the Mortgage Bankers Association suggest that 4 million residential mortgages are in that category — and a "significant share" of those borrowers are likely to lose their homes and end up as renters, Fannie Mae economists predict.
The economic downturn and continued decline in home prices "appears to have convinced many consumers that housing may not be as great an investment vehicle as had been the case in the past," Fannie Mae economists concluded.
Fannie Mae’s May housing forecast — issued before the release of NAR’s April pending sales index — called for a "modest improvement" in home sales in coming months.
Fannie Mae expects sales of existing homes to grow to an annual rate of 5.16 million during the second quarter of this year, 5.26 million during the third, and 5.29 million during the fourth quarter.
New homes are projected to sell at an annual rate of 314,000 a year during the second quarter, 326,000 a year during the third quarter, and 395,000 a year during the fourth quarter.
