WRAPUP 2-U.S. pending home sales hit 10-month low, services sector rebounds

Mon Nov 25, 2013 2:07pm EST

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* Pending home sales fall 0.6 percent in October
    * Home sales contracts lowest in 10 months
    * Services sector activity rebounds in early November

    By Lucia Mutikani
    WASHINGTON, Nov 25 (Reuters) - Contracts to buy previously
owned U.S. homes hit a 10-month low in October, but a strong
rebound in services sector activity early this month suggested
some resilience in the economy as the year winds down.
    The National Association of Realtors said on Monday its
Pending Home Sales Index, based on contracts signed last month,
slipped 0.6 percent to 102.1, the lowest level since December. 
    It was the fifth straight month of declines in contracts and
suggested home resales could remain on the back foot for the
rest of this year. These contracts become sales after a month or
two. Home resales fell in October for a second straight month.
    "The data suggest sluggish home sales going into the end of
the year and that the tightening of financial conditions this
summer did have a negative impact," said Yelena Shulyatyeva, an
economist at BNP Paribas in New York.
    Contracts fell 4.6 percent in September. They were down 1.6
percent compared to October last year.  
    Economists, who had expected pending home sales to rise 1.3
percent in October from September, said the weak home sales
trajectory could see the Federal Reserve sticking to its $85
billion monthly bond buying program until early next year.
    The U.S. central bank has targeted housing as a channel to
boost growth and speed up job creation. It noted at last month's
meeting that the housing sector recovery had slowed somewhat in
recent months.
    The Realtors group said October's 16-day partial shutdown of
the federal government had sidelined potential buyers.
    According to the NAR, a survey of realtors found 17 percent
of respondents reported delays in signing contracts because they
had to wait for the Internal Revenue Service to verify income
before the mortgage could be approved.
    The Realtors group expected a bounce back in contracts, but
it cautioned that lack of inventory remained a constraint.
      
    
     
    PROMISING SIGNS
    "Early data for November look a little better, with separate
data on mortgage purchase application volumes perking up in the
middle of the month from a very low level," said Daniel Silver,
an economist at JPMorgan in New York.
    "The weekly purchase application data are very volatile, but
it is possible that this signals activity picking up to some
degree very recently or at least flattening out."
    Home sales have been dampened by a rise in mortgage rates.
    Interest rates have risen sharply since May as markets
anticipated the Fed would start cutting back on its monthly bond
purchases this year, with the 30-year fixed mortgage rate
surging nearly a full percentage point.
    It hit 4.49 percent in September, the highest since July
2011, according to Freddie Mac. But rates have been retreating
as expectations of a Fed taper are pushed to early next year.
    Though housing is cooling, the economy appears to have
retained some of the upward momentum from the third quarter.
    In a separate report, financial data firm Markit said its
preliminary Purchasing Managers Index for the services sector
rose to 57.1 this month from a record low 49.6 in October.
    This is the first month that Markit is publishing data on
the services industries, which it has been compiling since
October 2009. Readings above 50 signal expansion in the services
industries.
    The services sector survey adds to data such as retail sales
and nonfarm payrolls that have painted a fairly upbeat picture
of the economy early in the fourth quarter.
    Economists expect a slowdown in gross domestic product
growth this quarter as businesses cut back on inventories after
rapidly accumulating stocks in the July-September quarter.
    "With other data showing the recovery in the labor market
still on track, and confidence moving up again, we expect home
sales to start trending up again in coming months," said Jim
O'Sullivan, chief U.S. economist at High Frequency Economics in
Valhalla, New York.
    "For now, though, the weaker data are a reason for the Fed
to remain cautious about tapering."
    Pending home sales were up in the Northeast and Midwest.
They dropped 4.1 percent in the West.
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