Bloomberg News    By Timothy R. Homan – Dec 29, 2011 8:00 AM MT

Purchases of new single-family properties (NHSLTOT) advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. Photographer: Martin Adolfsson

The number of Americans signing contracts to buy previously owned homes rose more than forecast in November as falling prices and low borrowing costs boosted demand.

The index of pending home sales (USPHTMOM) increased 7.3 percent to the highest level since April 2010 after climbing 10.4 percent the prior month, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

The industry that triggered the 18-month recession that ended in June 2009 is showing signs of stabilizing as construction (CNSTTMOM) picks up, builder confidence improves and the number of houses on the market declines. Nonetheless, another wave of foreclosures may weigh on real-estate values next year.

“It looks like buyers are becoming more confident and are attracted to record-low mortgage rates,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. At the same time, he said, “activity still looks depressed by historical standards.”

Estimates for pending home sales ranged from a drop of 3 percent to an increase of 11 percent, according to the median of 30 forecasts in the Bloomberg survey.

Pending home sales were up 6.9 percent from November 2010.

All four regions showed an increase in contract signings from a month earlier, led by a 14.9 percent surge in the West and an 8.1 percent jump in the Northeast. Pending sales climbed 4.3 percent in the South and 3.3 percent in the Midwest.

Housing Affordability

“Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high,” NAR chief economist Lawrence Yun said in a statement accompanying the release. “Some of the increase in pending sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

Today’s report showed an index level for pending home sales of 100.1 on a seasonally adjusted basis. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.

Because they track contract signings, pending home sales are considered a leading indicator. Existing-home sales are tabulated when a contract closes, typically a month or two later.

Home Sales

Reports last week showed a pickup in demand for houses. Sales (ETSLMOM) of previously owned homes, which make up about 94 percent of the market, rose 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said Dec. 21.

Purchases of new single-family properties (NHSLTOT) advanced 1.6 percent to a 315,000 annual pace, a seven-month high, figures from the Commerce Department showed Dec. 23. The increase pushed the number of new homes on the market to a record low.

“As the stabilization process moves forward, we are seeing inventory levels continuing to ease in many of our markets, which is a prerequisite for a housing recovery,” Jeffrey Mezger, chief executive officer of Los Angeles-based KB Home (KBH), said in a Dec. 21 conference call with analysts.

Even with the increase in sales, residential real estate prices continue to fall, showing a broad-based decline that indicates the market continues to be weighed down by foreclosures.

Home Values

The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said this week. The median forecast of economists in a Bloomberg survey projected a 3.2 percent decrease.

The threat of continued declines could keep potential buyers waiting until they believe the market has bottomed, even as cheaper properties may make purchasing a home more affordable.

U.S. policy makers have initiated programs designed to revive the housing market. The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original plan helped less than a quarter of the people targeted to lock in lower mortgage rates.

At the Federal Reserve, officials this month reiterated that they will keep their benchmark interest rate near zero until at least mid-2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net