US pending home sales gain in March but declines are forecast

04 May 2010 18:36  [Source: ICIS news]

WASHINGTON (ICIS news)--Pending sales of existing US homes rose 5.3% in March compared with February for the second monthly gain, but the National Association of Realtors (NAR) warned on Tuesday that sales likely will fall in the months ahead.

The real estate trade group said that its pending home sales index rose to 102.9 in March from the 97.7 score recorded for February.

February’s pending sales of existing residential properties was up by 8.2% compared with dismal numbers seen in January when the index had fallen 7.6% to a nine-month low of 90.2.

The pending home sales index was set at 100 for the measure’s initial year of 2001.

A home purchase is listed as a pending sale when a contract has been signed but the transaction has not closed, although the deal usually is completed and funded within a month or two.

The rate of pending home sales usually is seen as a reliable forward-looking indicator for the housing market.

However, NAR Chief Economist Lawrence Yun said that the March gain in pending home sales data did not in this instance portend improving sales ahead.

He said the improvements in February and March were due in large measure to record-low prices for existing family homes and the availability of a federal tax credit of up to $8,000 (€6,080) for home buyers.

But that tax credit expired at the end of April. To qualify for the tax credit, home buyers had to enter a purchase contract by the end of last month, although contracts initiated in April had until the end of June to close and still be eligible. 

With April and the tax credit now ended, existing home sales are likely to turn down again in May and possibly the following months, according to the NAR.

“Clearly the home buyer tax credit has helped stabilise the market,” said Yun, but he cautioned that “In the months immediately following the expiration of the tax credit, we expect measurably lower sales.”

He indicated that home sales and, more important for chemical makers, new home construction might improve on their own in the second half this year and become self-sustaining in 2011 - “if the economy can add jobs at a respectable pace”.

The US housing market - and new home construction in particular - is a crucial downstream consuming sector for the nation’s chemicals and resins manufacturers.

Sales of existing homes do not generate much demand for chemicals and resins, but new residential construction is not expected to show much improvement until the glut of existing homes is reduced.

($1 = €0.76)

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