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WRAPUP 2-U.S. home sales gauge rises, offering glimmer of hope

Published 02/03/2009, 04:47 PM
Updated 02/03/2009, 04:48 PM
TGT
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* U.S. pending home sales jump 6.3 percent in December

* Q4 home vacancy rate matches previous record

* January auto sales hit lowest level since 1982

(Adds details, updates market prices)

By Lucia Mutikani

WASHINGTON, Feb 3 (Reuters) - Pending sales of previously owned U.S. homes surged in December as buyers waded back into the market, lured by lower prices and mortgage rates, data showed on Tuesday, offering a ray of hope for the troubled economy.

Potential homeowners, worried by rising unemployment and hit by falling net worth, have largely shunned the housing market, making it hard for the economy to escape its downward spiral.

But there is cautious optimism the U.S. housing market, at the center of the worst financial crisis since the Great Depression, may be close to reaching a bottom.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, surged 6.3 percent to 87.7 in December, the first increase since August.

Wall Street economists had expected the index to be flat.

"It's an encouraging straw in the wind. It's not enough to turn the housing market around yet, but maybe it's an encouraging sign that things might get worse at a slower rate in the first half of this year," said John Ryding, chief economist at RDQ Economics in New York.

The data and unexpectedly strong earnings from drugmaker Merck & Co , lifted U.S. stocks. The Dow Jones industrial average <.DJI> ended up 141.53 points at 8,078.36. U.S. government bond prices, which typically tend to rise on data showing economic distress, fell sharply.

Compared with the same period a year-ago, pending home sales were up 2.1 percent. Sales surged in the Midwest and South last month but fell in the Northeast and West.

NAR Chief Economist Lawrence Yun said the Obama administration's package of spending and tax-cut measures that could cost close to $900 billion, shouldn't bypass housing.

"If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus," said Yun.

Aggressive measures by the U.S. Federal Reserve, which included cutting its target for overnight interbank borrowing costs to a range of zero to 0.25 percent, buying securities and making loans, have pushed mortgage rates lower. That has helped make homes more affordable.

AFFORDABILITY BEST IN 39 YEARS

The drop in mortgage costs has combined with a relentless fall in prices to make homes in December the most affordable in 39 years, the NAR said.

However, a Commerce Department report showed the share of homes privately owned but empty rose to 2.9 percent in the fourth quarter. That matched the record reached in the first quarter of last year and suggested the housing market would probably remain mired in a downturn for a while.

An elevated vacancy rate is a sign many homeowners have moved out of their primary residence even before it was sold.

Mixed data on the housing market, whose stability analysts say is critical to pull the U.S. economy out of a year-long recession, have sent conflicting signals in recent days.

Last week, the NAR reported an unexpected rise in existing home sales in December, driven mainly by distressed sales, with prices falling from a year earlier by the biggest margin in over 40 years.

Government data on Thursday showed sales of new U.S. single-family homes dropped in December by the biggest margin since 1994. But economists remain largely optimistic.

"I think we've got to be very close to the bottom here. The two reports on housing we got last week ... both showed that inventories were down heavily and prices were down heavily," said David Kelly, chief market strategist at JP Morgan Asset Management in New York.

"When sales are at such a depressed level and inventories are falling, I would expect the market to bounce."

Falling house prices, coupled with the stock market collapse and tight access to credit, have hit consumer spending, which accounts for about two-thirds of U.S. economic activity.

Households, confronted by rising unemployment and job insecurity remain hesitant to loosen their purse strings, especially on big ticket items like cars.

U.S. auto sales dropped to their lowest level since 1982 in January, according to preliminary sales figures released on Tuesday. Light vehicle sales were estimated near 9.4 million units on an annualized basis.

Separately, Redbook Research said U.S. chain store fell 2.7 percent in the week ended Jan. 31, compared with the same period a year ago.

That trend continued with the International Council of Shopping Centers reporting sales down 2.5 percent last week, versus the same period last year. Compared with the prior week, sales rose 1.6 percent.

(Additional reporting by Patrick Rucker in Washington, Kevin Krolicki in Detroit, Burton Frierson and Lynn Adler in New York; Editing by Kenneth Barry)

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