By Chris Cermak

WASHINGTON (MNI) – Most economists are expecting another drop in
existing U.S. home sales for October, despite record low mortgage rates
and some signs of improving confidence among home builders.

The positive effect of low interest rates and still-falling home
prices has largely been offset by ongoing economic uncertainty in the
U.S. and Europe, coupled with lower mortgage limits on federally-insured
high-value loans that took effect October 1.

“It does look to us like on the demand side, things are still quite
fragile in terms of housing,” Sean Incremona of 4Cast Ltd told Market
News International, who forecast October existing sales at an annual
rate of 4.8 million. “Combine the uncertainty and the (FHA) regulation
change, and that would be offsetting (lower mortgage rates).”

Interest rates on a benchmark 30-year fixed-rate mortgage hit a
record low of 4.21% the week of October 5 and, while rising at points
over the course of the month, had fallen back to 4.23% by the week of
November 5, according to bankrate.com.

Yet a 1.2% drop in the pending home sales index to 88.6 last month
suggests October existing home sales figures, to be released Monday by
the National Association of Realtors, will likely come in lower than the
4.91 million annual rate in September.

New York Federal Reserve President Bill Dudley Wednesday
acknowledged the housing sector has been “relatively unresponsive” to
low interest rates but insisted the Fed was “not out of ammunition.”

If the Fed decides on a third round of quantitative easing, Dudley
said “it might make sense to do much of this in the mortgage-backed
securities market,” which would have “a greater direct impact on the
housing market.”

The NAR has also been campaigning to convince Congress to raise FHA
loan limits, which the association insists is having an effect on home
sales, offsetting the Fed’s efforts to boost demand by lowering
long-term interest rates.

“The Federal Reserve evidently has been attempting to lower
mortgage rates, yet more consumers are faced with taking out jumbo loans
that carry higher interest rates,” NAR Chief Economist Lawrence Yun said
in a release of the NAR’s pending sales index last month.

The weak existing sales demand comes despite some small signs that
homebuilders are beginning to boost construction, albeit from record low
levels. There has also been some strengthening in new home sales as
prices dropped.

Housing starts have increased steadily over the second half of the
year, with an average annual rate of 610,000 over the third quarter and
October figures released Wednesday coming in at 628,000. Building
permits, at 658,000, are at their highest since March 2010, suggesting
the improving trend could continue over the coming months.

Overall confidence in the sector has also improved slightly. The
Housing Market Index by the National Association of Home Builder climbed
six points over the last two months, rising to 20 in November. That
marked the highest level since May 2010, though still well below the
50-point mark that would indicate most builders have a positive
attitude.

Incremona suggested confidence may be rising as homebuilders have
come to accept a new low-level sales reality in the U.S. housing market,
and are encouraged that home sales have at least stabilized. Many may
also simply be starting to build up from extremely low inventories.

“Homebuilders are starting to get used to the fact that where
demand is right now, and it’s not getting any worse,” Incremona told
MNI.

Existing home sales averaged a 4.88 million annual rate over Q2 and
Q3, down from 5.14 million in the first three months of the year but
about the same sales pace seen in 2010.

New home sales were reported at a 313,000 annual rate in September,
the highest level since April, as prices dropped for the third straight
month. The higher sales pushed the months’ supply of new homes down to
6.2, the lowest inventory level since April 2010.

October Existing Home Sales will be released at 10 a.m. ET Monday
by the National Association of Realtors.

— Chris Cermak is a Washington reporter with Need to Know News

** Market News International Washington Bureau: 202-371-2121 **

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