US pending home sales tumble in September

CONTRACTS to buy US previously owned homes fell for a fourth straight month in September as the housing market continued to buckle under the strain of higher mortgage rates.

The National Association of Realtors (NAR) said on Friday (Oct 28) its Pending Home Sales Index, based on signed contracts, dropped 10.2 per cent to 79.5 last month. Contracts fell in all four regions.

Economists polled by Reuters had forecast contracts, which become sales after a month or two, would drop 5.0 per cent. Pending home sales plunged 31.0 per cent in September on a year-on-year basis.

The decline in signed contracts suggested that existing home sales would continue to fall after posting their eighth straight monthly decrease in September.

The housing market has been the sector hardest hit by the Federal Reserve’s (Fed) aggressive interest rate hikes. The US central bank is tightening monetary policy to dampen overall demand in the economy, with annual inflation having risen at its fastest pace in 40 years.

The Fed has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00 per cent to 3.25 per cent, the steepest pace of policy tightening in a generation or more.

With further policy tightening expected, mortgage rates have soared. The 30-year fixed mortgage rate averaged 7.08 per cent this week, breaking above 7.0 per cent for the first time since April 2002, according to data from mortgage finance agency Freddie Mac.

Residential investment contracted for a sixth straight quarter in the third quarter, the longest such stretch since the housing market collapse in 2006, the government reported on Thursday. REUTERS