US housing sector not likely to improve near-term

09 September 2008 20:15  [Source: ICIS news]

WASHINGTON (ICIS news)--US housing industry authorities said on Tuesday that home sales are not likely to improve over the next few months because consumer confidence remains low despite favourable interest rates and despite federal stimulus efforts.

 

The National Association of Realtors (NAR) said that home purchase contracts signed in July fell by 3.2% from the level seen in June, suggesting that “the level of home sales is expected to show little movement in the months ahead”.

 

The US housing industry is a crucial downstream consuming sector for a broad range of chemicals and chemical-derived products.

 

The association’s pending home sales index, which is based on the number of home purchase contracts concluded month by month, fell to 86.5 in July compared with the June index of 89.4.

 

The index had shown a nearly 6% increase from May to June, raising hopes that the long-struggling US housing market might have hit bottom at last.

 

However, the July contract figures indicate that “pending home sales are oscillating month-to-month, with the long-term trend essentially flat”, said Lawrence Yun, the association’s chief economist.

 

“Overly stringent lending criteria imposed by Fannie Mae and Freddie Mac in the past month no doubt held back contract signings,” Yun said, referring to the two giant mortgage lenders that were taken over by the US Treasury Department on Sunday.

 

While the Treasury’s take-over of Fannie Mae and Freddie Mac has restored financial market confidence in the long-term viability of those two secondary mortgage market majors, that federal action will not necessarily translate into more liberal lending terms and more home sales, the NAR said.

 

NAR president Richard Gaylord said that “even with the Treasury Department’s direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria or if it will remain overly stringent”.

 

Gaylord also raised doubts about the housing market stimulus package that Congress enacted and President George Bush signed on 30 July.  That measure, the Housing and Economic Recovery Act, provides a $7,500 (€5,325) tax credit to first-time home buyers.

 

“A first-time home buyer tax credit and lower interest rates … favour consumers, yet buyer confidence remains low,” Gaylord said.

 

The first-time home buyer tax credit came into force in August and would not have been reflected in the July pending home sales data.  Effect of the stimulus package might be seen in August housing market data.

 

($1 = €0.71)

 

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