By Carlos Torres Feb. 2 (Bloomberg) -- The number of contracts to buy previously owned U.S. homes was little changed in December after a record plunge, indicating a renewed tax credit will take time to revive sales. The index of purchase agreements, or pending home sales, rose 1 percent after a 16 percent drop in November that was the largest since records began in 2001, the National Association of Realtors announced in Washington. Compared with a year earlier, pending sales rose 11 percent. Demand jumped last year as first-time buyers rushed to qualify for an $8,000 government incentive due to expire Nov. 30. The subsequent renewal and expansion of the initiative may help underpin sales, cushioning the damage from mounting foreclosures and a possible increase in mortgage rates as Federal Reserve policy makers withdraw from the market. “We’ve had a lot of volatility because of the tax incentive,” said David Sloan, a senior economist at 4Cast Inc., a New York forecasting firm, who correctly projected the increase. “We’re in a moderately improving underlying trend. There is some pent-up demand for housing from very weak levels. Housing will be a source of support for the economy in the coming year. Things will slowly get better.” The gain in December matched the median forecast of 35 economists in a Bloomberg News survey. Estimates ranged from a drop of 3.2 percent to a 6 percent increase. Builder Shares Builder shares rose after D.R. Horton Inc., the second- largest U.S. homebuilder by revenue, reported its first quarterly profit since 2007 as sales rose and the company booked a tax benefit. The Standard & Poor’s Supercomposite Homebuilder Index climbed 4.9 percent at 10:15 a.m. in New York. The broader S&P 500 rose 0.3 percent to 1,092.9. The Realtors group’s pending sales data go back to January 2001, and it started publishing the index in March 2005. Three of the four regions showed increases in pending sales, led by a 5.2 percent gain in the Midwest. Pending sales dropped 3.8 percent in the West. Pending home sales are considered a leading indicator because they track contract signings. The Realtors’ existing- home sales report tallies closings, which typically occur a month or two later. The Realtors group started publishing the index in March 2005, and data go back to January 2001. Existing Home Sales Sales of previously owned houses dropped 17 percent in December, almost matching the record decrease in pending purchases the prior month, the agents’ group reported last week. President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months. About 2.4 million households will take advantage of the credit this year, according to a projection by Lawrence Yun, the real estate group’s chief economist. Yun anticipates existing home sales will rise to 5.6 million this year from 5.16 million in 2009. Another provision in the legislation allowed builders to use losses incurred in 2008 and 2009 to recoup taxes on profits going back as many as five years, three more years than usual. Lennar Corp., KB Home and Ryland Group Inc. are among the construction companies that have reported quarterly profits because of the tax refunds. Expanding, Hiring The government initiative may help Lennar, the nations’ third-largest homebuilder by revenue, expand and hire, according to its chief executive officer. “We can start adding communities and frankly adding jobs, which I think was the import of exactly that legislation,” Stuart A. Miller, head of the Miami-based company said after announcing quarterly results on Jan. 7. Homebuilder shares are outperforming the broader stock market so far this year as investors believe the tax benefit may buy the companies enough time to turn a profit later this year as sales improve. The S&P Supercomposite Homebuilder Index climbed 11 percent since Dec. 31 compared with a 1.9 percent decline for the S&P 500. Fed policy makers last week confirmed their program to purchase mortgage-backed securities, which was aimed at keeping borrowing costs low, will expire by March 31 as scheduled. Mortgage Rates The plan helped push the rate on a 30-year fixed mortgage down to 4.71 percent in early December, the lowest level since Freddie Mac started keeping weekly records in 1972. The rate hovered around 5 percent in the last two weeks of January. Joblessness and foreclosures are other concerns. Unemployment is forecast to average 10 percent this year, the highest level in seven decades, according to the median estimate of economists surveyed this month. A record 3 million U.S. homes will be repossessed by lenders this year, RealtyTrac Inc. forecast on Jan. 14. That is up from 2.82 million in 2009, the most since the company began compiling data in 2005. The drop in prices associated with foreclosures represents a double-edged sword for the industry. Decreasing values bring more properties within reach of buyers, while also prevents current owners from trading up. The agents’ group’s affordability index was at 163.8 in December, compared with a record high 178.8 reached in April. A reading of 100 means a family earning the median income can afford the median-priced home at the current mortgage rate. -- With assistance from John Gittelsohn in New York. Editor: Vince Golle To contact the reporters on this story: Carlos Torres in Washington ctorres2@bloomberg.net

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