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 Another report on Monday showed services sector activity held at a
4-1/2 year-high in July, a sign of economic momentum early in the
third quarter.
The National Association of Realtors (NAR) said its Pending Home
Sales Index, based on contracts signed last month, fell 1.1 percent
to 102.7. The decline followed three straight months of increases.
Economists, who had expected contracts to rise 0.5 percent last
month, were not fazed by the drop.
"The June pullback could be seen largely as a correction in a
broadly improving trend, with housing data remaining somewhat choppy
as the sector gradually continues to recover," said Gennadiy
Goldberg, an economist at TD Securities in New York.
Pending home sales, which lead sales by a month or two, increased
6.0 percent in May. They were down 7.3 percent compared to June of
last year. On a regional basis, contracts fell in the Northeast and
the South, but rose in the West and the Midwest.
U.S. stocks fell on the report, with the PHLX housing sector index
declining 1.2 percent. Shares in the nation's largest home builder,
D.R. Horton, shed 1.5 percent. Housing has been making gains after
hitting a soft patch last summer following a run-up in mortgage
rates. Existing home sales hit an eight-month high in June.
Mortgage rates have declined, with the 30-year fixed rate at 4.16
percent in June compared to a peak of 4.49 percent last September.
The recovery, however, continues to be uneven, with new home sales
having plummeted 8.1 percent last month.
The sector has been hampered by higher interest rates and a
persistent shortage of properties for sale, which is putting upward
pressure on prices and sidelining many first-time buyers.
IMPROVEMENT SEEN
"The lack of income growth with potential first-time buyers is
problematic," said Ryan Sweet, senior economist at Moody’s Analytics
in West Chester, Pennsylvania.
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"But this should take a turn for the better next year with faster
wage growth and looser credits. If housing doesn’t reaccelerate, the
economy won't grow faster."
For now, the economy is pushing ahead. In a separate report on
Monday, financial data firm Markit said its preliminary services
Purchasing Managers Index was 61.0 in July, unchanged from June.
A reading above 50 signals expansion in economic activity, and
June's reading was the highest final reading since the survey began
in October 2009.
"Service sector companies continue to perform strongly against
post-recession trends, and overall the latest manufacturing and
services PMI surveys suggest that the economy has enjoyed a strong
start to the second half of 2014," said Chris Williamson, Markit's
chief economist.
The government is expected to report on Wednesday the economy grew
at a 3.0 percent annual pace in the second quarter after contracting
at a 2.9 percent rate in the first three months of the year.
(Writing by by Moriah Costa and Lucia Mutikani, Additional reporting
by Richard Leong and Ryan Vlastelica in New York; Editing by Paul
Simao)
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