Gauge of pending home sales climbs

WASHINGTON —  Pending sales of existing U.S. homes rose modestly in October, bucking Wall Street forecasts, but the decline from a year earlier was the third-largest on record, a reminder of how far housing has fallen.

The National Assn. of Realtors said Monday that its pending home sales index, based on contracts signed in October, was up 0.6% to 87.2 from an upwardly revised index of 86.7 in September.

The forward-looking indicator of home sales was more upbeat than expected by economists, who had forecast a decline of 1%.

The stronger-than-expected reading of the index, which measures contracts signed on sales that have yet to close, came a day ahead of a meeting of Federal Reserve policymakers. Wall Street saw the rise as increasing the likelihood the central bank would trim interest rates by a modest quarter of a percentage point and not a bolder half a point as some had thought possible.

Still, the boost in pending sales was not enough to increase analysts’ hopes for a housing recovery any time soon.

“It’s possible that after a big hit, housing sales will stabilize, but the short answer is that it’s too soon to say,” said James O’Sullivan, an economist at UBS Securities in Stamford, Conn.

Year over year, pending sales were down 18.4%, the third-largest drop since the trade group began keeping such records in January 2001. Only the declines registered in August and September were deeper.

Lawrence Yun, the trade group’s chief economist, said home sales and prices should level out next year after this year’s declines.

Existing-home sales should hit a pace of 5.7 million in 2008 compared with an expected 5.67 million this year, the Realtors association said. It said median home prices would probably fall 1.9% this year but rise 0.3% in 2008 to $218,300.

This year’s home price decline would be the first annual decline since the Great Depression, Yun said.

The deep housing downturn and a related tightening in credit conditions have raised the prospect that the U.S. economy could tumble into recession.

Morgan Stanley economists said in a research note Monday that a mild U.S. recession was now likely, with tighter credit set to put a crimp on business spending.

Separately, a closely watched survey of economists released Monday showed forecasters more generally had seen recession risks rise over the last month.

The odds of a recession in the next 12 months are now nearly 4 in 10, versus 1 in 3 a month ago, the Blue Chip Economic Indicators newsletter said.