Preview: Pending Home Sales to Fall for Third Straight Month

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The U.S. housing market continues to struggle as prices fall, demand weakens, and inventories build up. An industry index set for release on Tuesday is expected to show that contracts for homes on the market continued to fall in November, suggesting that actual sales last month and into 2009 will continue to decline.

The pending U.S. home sales index measures housing purchases that have been signed but not finalized, thereby gauging the performance of home sales in the following months.

The index has been oscillating up and down each month for more than a year, yet in October it fell for a second straight month, and is set to fall once again in November.

"Pending home sales numbers are likely to suggest the housing market is still spiraling down," said BMO senior economist Sal Gautieri. "It looks like with mortgage rates falling rapidly in December, we might get some bounce in home sales in December, but at least in November we'll see the third straight decline in home sales."

A Bloomberg poll of 32 economists said pending sales are expected to fall by a full percentage point in November, following a 0.7% decline in October and a 4.3% cutback in September. Estimates range from -5.0% to +1.5%.

Patrick Newport, U.S. economist at IHS Global Insight, said the pending home sales index may not be too reliable for November - the most severe phase of the credit crunch - as many contracts didn't translate into actual sales.

He noted that existing home sales fell a whopping 8.6% in November, a decline that was completely unexpected by anyone relying on the pending sales index.

Still, Newport said the PHSI should give an idea of how demand is holding up in the final months of the year.

He added that regional sales in the West should be given particular attention, as sales had been growing in recent months but then tumbled 10% in November. Newport said if sales in the region fall again, it will indicate that demand is declining in spite of the massive price declines offered from foreclosed homes.

The index, to be released at 10 a.m. EST, is compiled by the National Association of Realtors, a private group of 960,000 agents and brokers in the residential and commercial real estate markets.

By Patrick McGee and edited by Sarah Sussman
©CEP News Ltd. 2009