Pending Home Sales Drop

The pending home sales index, which tracks signed contracts, drops for the fourth straight month.
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Pending home sales fell for the fourth straight month in December, but the National Association of Realtors expects sales to recover in coming months.

The Pending Home Sales Index was down 3% in December to a level of 116.4, compared with 120 in November, the NAR said. Sales have been dropping since the record level of 129.2 set in August.

The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction hasn't closed. Finalized sales usually lag contracts by one or two months.

"In many recent transactions we're looking at a delayed effect of mortgage interest rates that peaked in November but are now lower than expected, said David Lereah, NAR's chief economist, in a statement. "Mortgage applications have trended up in recent weeks, so we shouldn't be surprised to see pending home sales rise in the next couple months."

Still, Lereah expects the housing market this year won't reach the record selling levels of 2005.

The index rose 2.3% in the South from November to December. The index increased 1.5% in the Northeast, fell 8.1% in the West and dropped 9.3% in the Midwest.

Shares of homebuilders fell after the report.

Beazer

(BZH) - Get Report

dropped 2.6% to $70.97 in early trading,

Centex

(CTX)

fell 2.1% to $69.92, and

D.R. Horton

(DHI) - Get Report

declined 2% to $36.56.

"It's a continuing theme that we've seen home sales decline in the second half of last year," says Randall Diamond, sales trader at Miller Tabak. "Pending home sales have become more important because it's a leading indicator of future home sales."

"The Fed is really in a quandary because they see future inflation pressure, but how do they react here with housing data, which is continuing to weaken?" he says.

Also on Wednesday, the Mortgage Bankers Association said mortgage applications fell 5.1% last week on a seasonally adjusted basis.

The Purchase Index for mortgages fell 8% from the week before, and the refinance index decreased by 1.5% as mortgage rates rose. The average contract interest rate for 30-year fixed-rate mortgages increased to 6.20% from 6.04% a week earlier.