Contracts for pending sales of previously owned U.S. homes fell faster than expected in January to the slowest pace in three months, data from a real estate trade group showed on Monday.

CHICAGO PMI: Business activity in the U.S. Midwest unexpectedly rose in February, climbing to its highest level since July 1988, a report showed on Monday.

KEY POINTS: * The National Association of Realtors Pending Home Sales Index, based on contracts signed in January, declined 2.8 percent to 88.9 from a downwardly revised index of 91.5 in December. That is the second straight monthly decline and the slowest pace since October. * Economists polled by Reuters ahead of the report were expecting pending home sales to decline by 2.2 percent. * The Institute for Supply Management-Chicago business barometer rose to 71.2 in February. That was up from a reading 68.8 in January and topped economists' forecast for 67.7. * The employment component of the index slipped to 59.8 from 64.1 the month before, while new orders edged up to 75.9 from 75.7. The new orders index rose to its highest level since December 1983.



The only good news that we got on housing last week was that 2.7 percent increase in existing home sales in January, which really seems to stick out from all the other data on housing which shows that there is just no positive momentum in the housing industry. I think you can make a case that we are building a base that we can recover from maybe in the second half of 2011, but in the first half of the year there are just not enough pieces of the puzzle in place to give sales a meaningful lift. Affordability has come down and interest rates are still relatively low but we haven't had sufficient job growth to generate a recovery in housing.


There was a big downward revision to December, so that's disappointing. I think homes sales are becoming secondary as data, what's interesting is the way that manufacturing has been so much stronger this year. We're starting to see indications that perhaps we can put a real solid recovery together without housing.

The other thing about housing, and this report in particular, is that even if we have declines of 3.2 percent in December and 2.8 percent in January, which sound pretty big, there were very large increases in October and November and there is a similar pattern in the realized home sales numbers as well, existing and new.

There is quite a bit of volatility, but we are no longer making new lows, and I think that is quite important in a sense we would all love to see a rising housing market but I think everyone is willing to settle for a flat housing market, it's a lot better than the free-fall of the last couple of years.