U.S. housing sector sees more signs of decline

— -- The number of Americans signing contracts to buy previously owned homes fell more than forecast in November, signaling a further deterioration in housing.

The National Association of Realtors' index of pending home sales dropped 2.6% to 87.6, after a 3.7% gain in October that was larger than previously estimated. The figures underscore Treasury Secretary Henry Paulson's forecast that the housing recession will continue, posing the biggest risk to economic expansion. More stringent lending practices after the collapse in subprime lending and prospects that home prices will keep falling appear to be deterring buyers.

"There is no evidence it is bottoming," Paulson said Tuesday.

Justin Smirk, an economist at Westpac Banking, said: "There's more bad news to come in housing before it gets better."

Paulson indicated that the grim outlook may prompt an expansion of the plan administration officials have brokered with mortgage lenders. The plan was designed to make it easier to negotiate loans and freeze some adjustable-rate mortgages at current rates.

A third of planned home sales were canceled or delayed in September, October and November because of loan problems, according to the results of a survey of 2,416 real estate agents.

Pending home resales are considered a leading indicator because they track contract signings. The group's existing-home purchases report tracks closings, which typically occur a month or two later.

Meantime, KB Home, kbha home builder that has lost more than half its market value, reported a wider-than-estimated fourth-quarter loss after $918 million of write-downs and tax expenses.

"They reported dreadful numbers and actually forecast that 2008 may be worse," David Rolfe, chief investment officer at Wedgewood Partners, said of KB Home's results.

Boston Federal Reserve President Eric Rosengren said Tuesday that the housing market is headed for its worst performance in 50 years, and that the drop in home prices could accelerate if the economy weakens.

He said previous downturns in the mortgage sector are generally associated with hard economic times, although he steered clear of predicting a recession.

"History may or may not repeat itself," he told an audience of industry executives at a meeting of the Connecticut Business and Industry Association.

Treasury Secretary Paulson conceded Tuesday that the U.S. economy is being buffeted by "headwinds" but said "the economy is going to continue to grow " and the Bush administration has not yet decided whether it needs new stimulus measures.

Pressed to say in an interview with CNBC whether the White House will act to boost economic activity, Paulson would only say the issue is under consideration.

Paulson was challenged about the need for stimulus by the head of the prestigious National Bureau of Economic Research.

"I think we're not in a recession now," said Martin Feldstein, a Harvard professor who heads the private National Bureau of Economic Research, which determines when recessions occur. He agreed with Paulson that slow growth lies ahead but warned it might be so feeble that it does not continue.

"I think that for the next quarter or so that (slow growth) is the most likely outcome, but I think there is a serious risk that it could get worse than that, and we could see an actual downturn," Feldstein said.

Some type of fiscal stimulus is needed to avert a recession, Feldstein argued, along with more interest rate cuts from the Federal Reserve.