Contracts to purchase previously owned homes declined in August as tighter credit and limited wage growth weigh on potential buyers.
The pending home sales index dropped 1% after a 3.2% increase in July, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for the index to drop 0.5%.
Stricter lending practices since the housing crisis and still-stagnant salary increases are keeping downward pressure on sales activity, particularly for those eyeing properties for the first time. Further payrolls gains, on track for their best year since 1999, could help spur the wage pickup needed to bring more buyers into the housing market.
“Housing seems to have taken a little bit of a step back,” Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pa., said before the report. “Wage growth has been very minimal for the last several years and I think that’s weighing on the collective psyche of potential first-time home buyers.”
Another report today showed consumer spending rebounded in August as job gains encouraged households to loosen their purse strings. Purchases increased 0.5% last month after being little changed in July, according to figures from the Commerce Department. The report also showed incomes rose 0.3%.
Estimates in the Bloomberg survey of 35 economists forecasting pending home sales ranged from a decline of 2.9% to a 2% advance.
Purchase contracts declined 4.1% in the 12 months ending in August after a 2.8% annual decline in July, the NAR report showed. August marked the 11th month of year-over-year decreases.
The pending sales index was 104.7 on a seasonally adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.
Pending sales declined in three of four regions, led by a 3% drop in the Northeast. Purchases were down 2.1% in the Midwest and 1.4% in the South. They rose 2.6% in the West.
Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a deal closes, usually a month or two later.
Those resales unexpectedly fell last month to a 5.05 million annual pace from 5.14 million in July as fewer investors made purchases, NAR data showed last week. Construction also fell in August, with housing starts dropping 14.4 percent to a 956,000 annualized rate from July’s pace that was the strongest in almost seven years.
A sustained pace of hiring may help lift homes sales through year-end. Employers have added an average 215,380 to payrolls a month so far this year, the strongest pace since 1999. Economists project job gains to average 216,000 for all of 2014, according to the median in a Bloomberg survey conducted Sept. 5-10. The Labor Department will release September figures on Oct. 3.
Young Americans, burdened with having to repay school loans, are among those who will benefit most from an improving job market, the real-estate agent’s group said.
“Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years,” NAR chief economist Lawrence Yun said in a statement.
At the same time, limited wage gains are giving Americans reason to temper enthusiasm. Average hourly earnings rose 2.1% in August from a year earlier, little changed from the 2% average since the last recession ended in June 2009.
The uneven progress in the labor market has kept homebuilders such as Los Angeles-based KB Home from declaring the housing rebound will gain speed.
“The biggest obstacle to a full recovery is the lack of real job and income growth,” Chief Executive Officer Jeffrey Mezger said on a Sept. 24 earnings call. “With this limited income growth, there is also no advancement in buying power. Both job and income growth are essential to a fulsome housing recovery.”