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U.S. pending home sales end slide, hint at stabilization

A view of single family homes for sale in San Marcos, California October 25, 2013. REUTERS/Mike Blake

By Alister Bull

WASHINGTON (Reuters) - Contracts to purchase previously owned U.S. homes edged up in November, marking the first increase in six months and providing a hopeful sign the sector has begun to stabilize after its momentum was sapped by rising mortgage rates.

The National Association of Realtors said on Monday its Pending Home Sales Index, based on contracts signed last month, rose 0.2 percent from October, to 101.7. But contracts were 1.6 percent below last November's levels.

Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to rise 1.0 percent.

"Several housing indicators have improved recently and the very modest increase in pending home sales in November is a tentative sign that activity is stabilizing, or perhaps even picking up," said Daniel Silver, an economist at JPMorgan in New York.

Housing sales had been dampened by a rise in mortgage rates, which began to climb earlier this year as investors bet the Federal Reserve would start to reduce the stimulus it provides the U.S. economy.

The rise in borrowing costs helped push home resales down in November to their lowest level in nearly a year, but other recent indications of the sector's health have brightened.

Housing starts rose in November to the highest level in six years and sales of new homes dipped only slightly following a big jump in October.

Along with the latest reading on pending home sales, those reports provided an encouraging sign that housing was adjusting to mortgage rates that have advanced by more than a percentage point since May, to almost 4.5 percent.

The signs of stabilization have been accompanied by other signals showing improvement in the U.S. labor market and manufacturing that have reinforced hopes the economy will deliver broad growth in 2014.

Expectations of stronger growth and a decision by the Fed to begin scaling back its bond-buying stimulus have led long-term borrowing costs higher, with the yield on the 10-year U.S. Treasury note breaching 3 percent last week.

The central bank announced on December 18 that it would scale back bond purchases by $10 billion in January to $75 billion and it is expected to maintain this moderate pace of tapering over the course of the year.

The Fed's move confirmed its confidence in the underlying momentum of the economy and helped push Wall Street stocks to record highs.

"With home prices continuing to rise, labor markets slowly recovering and mortgage rates still low from a historical perspective, we expect the housing sector to continue its path toward gradual recovery in the coming year," wrote Gennadiy Goldberg, U.S. strategist with TD Securities.

(Reporting by Alister Bull; Editing by Chizu Nomiyama, Diane Craft and Dan Grebler)