Preview: Pending Home Sales to Confirm Fourth-Quarter Gloom
October and November were two of the worst months in the U.S. recession that began in December 2007, so as more data continues to pile in, it should come as no surprise that markets have low expectations for the results. Tuesday's look at the housing sector will be no exception when an industry group releases the October data for pending home sales.
Pending U.S. home sales, which represent housing purchases that have been signed but not finalized, are looked at to gauge how existing home sales will perform in the following month.
After declining by 4.6% in September, pending sales are expected to set to begin the fourth quarter with another 3.0% drop-off in October. Some economists are expecting even worse.
"The reality is that we're in the worse part of the recession," said Brian Bethune, chief U.S. financial economist at IHS Global Insight.
Stock markets were volatile, asset-backed markets froze up, and credit tightened during the month, so a drop in the pending home sales index will hardly be a shock, he added.
Bethune's forecast is for an 8% drop, a much bigger decline than the consensus expectation. Yet, he said markets have given up all hope on fourth-quarter data, so the index won't be looked at closely and markets are unlikely to move on the data.
"The fourth-quarter has been written off altogether by the markets," Bethune said, adding that traders are already looking ahead to how mid-2009 will shape up.
"My sense of it is that October is going to be one of the worst months given what we know about financial markets," he added.
Sal Guatieri, senior economist at BMO Capital Markets, added that mortgage applications for purchases sank to nine-year lows in October.
"This could point to a second straight drop in existing home sales in November, suggesting that the stability seen earlier in the year is melting under the heat of tightening credit and accelerating job losses," he said.
Looking ahead, Bethune said November sales are likely to be negative as well, but he noted there was some pick-up in mortgage applications in the latter part of November.
The index is released by the National Association of Realtors (NAR), which has been calling for increased government support to shore up demand for the housing market. Bethune wrote on Monday that incentives for homebuying will help the economy recover more quickly.
"Home sales have historically been the powerhouse for pushing our economy back into growth mode after a downturn," he wrote at the Real Estate Channel website. "Given signs that improving affordability conditions are starting to drive home sale gains, the signs are good that home sales will spur the next economic recovery."
The report will be released at 10 a.m. EST.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008