Pending Home Sales Slip in July but Remain Solid

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pending homes sales
Gregory Bull/AP
By CHRISTOPHER S. RUGABER

WASHINGTON -- Fewer Americans signed contracts to buy U.S. homes in July, but the level stayed close to a 6½-year high. The modest decline suggests higher mortgage rates have yet to sharply slow sales.

The National Association of Realtors said its seasonally adjusted index for pending home sales declined 1.3 percent to 109.5. That's close to May's reading of 111.3, the highest since December 2006.

The small decline suggests sales of previously owned homes should remain healthy in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.
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Sales jumped to an annual pace of 5.4 million in July, the highest in 3½ years. That's consistent with a healthy housing market. Higher mortgage rates appeared to have had a bigger impact on new-home sales, which plummeted last month. That raised fears that rate increases were restraining the housing recovery.

But many economists note that home prices and mortgage rates remain low by historical standards. Consistent job gains and rising consumer confidence may also support sales in the coming months.

"Higher mortgage rates are clearly negative for housing, but other key drivers, including the labor market, confidence, and expectations for prices and interest rates still point to improvement," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a note to clients.

The average rate on a 30-year mortgage reached 4.58 percent last week, the highest level in two years and up from 3.35 percent in early May. Still, that's below the average since 1985 of about 7 percent, according to Bankrate.com.

Mortgage rates began to rise after Federal Reserve Chairman Ben Bernanke first signaled that the Fed might reduce its bond purchases later this year. The purchases have helped keep borrowing costs low.

Rising home prices and more construction have boosted economic growth and created more jobs. The housing recovery has provided crucial support to the economy when other drivers, such as manufacturing, have struggled.

However, gains in home prices may be starting to level off. Prices jumped 12.1 percent in June from a year earlier, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That's slightly slower than May's 12.2 percent year-over-year gain. But price increases slowed in June from May in 14 of the 20 cities tracked by the index.

The stabilization in prices isn't necessarily a bad thing, economists said, because it could keep homes affordable and help prevent a bubble from developing in the housing market.

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Pending Home Sales Slip in July but Remain Solid
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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