US existing home sales dip 2.2% in May as tax credit expires

22 June 2010 17:17  [Source: ICIS news]

WASHINGTON (ICIS news)--US sales of existing homes fell by 2.2% in May, national housing market officials said on Tuesday, reflecting the expiration in April of a federal stimulus plan for home buyers that had driven residential sales to 7% and 8% gains in two previous months.

The National Association of Realtors (NAR) said sales of existing homes in May were at a seasonally adjusted annual rate of 5.66m units, a decline of 2.2% from the surge of nearly 5.8m home sales in April when activity was up by a revised 8% from March.

March had seen a 7% gain compared with existing home sales in February.

A year-long federal tax credit of $8,000 (€6,480) for home buyers expired at the end of April, and housing market analysts had expected a corresponding decline in transactions in months following.

Although existing home sales in May were down from April, they were still at a relatively elevated level, running nearly 20% ahead of activity seen in May 2009.

NAR chief economist Lawrence Yun indicated that the May decline might have been more pronounced except that some of the sales completed in May were on contracts signed during April and still eligible for the tax credit.

Those who contracted for purchase of a home in April will be eligible for the $8,000 tax credit if the sale was completed before the end of June.

Yun said he expects the carry-over effect of the last-minute April sale contracts also will influence the data on existing home sales for June.

“We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” he said.

But after June, data on existing and new home sales should show whether there is fundamental strength in the housing market without the federal tax credit incentive. Market analysts will be watching to see if there is enough general demand to sustain a recovery in the crucial housing sector.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals and chemicals-based products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

While new home sales represent the principal consuming market for chemicals and related products, sales of existing homes are important because demand for new homes is not likely to show much growth when there is a large inventory of existing homes for sale.

The NAR said that total housing inventory at the end of May declined by 3.4% from April to 3.89m units for sale, representing an 8.3-month supply at current sales rates.

Although the inventory of unsold homes in May was down from April’s 8.4-month supply, it was still more than 1% above the supply of homes for sale a year ago in May 2009.

That means that a full year of federal tax credit incentives has had little effect in offsetting the continuing rash of home foreclosures to whittle down the inventory of existing homes for sale.

However, NAR noted that May’s inventory is nearly 15% below the record high supply of 4.58m unsold homes that was seen in July 2008.

Yun said that a real recovery in the US housing sector will in large measure depend on hoped-for gains in employment and a decline in the number of foreclosed homes entering the market.

US unemployment is at 9.7%, and although the trend in unemployment insurance claims has been moderating, there has been little recent strength in private sector job growth.

Realty Trac, a private sector housing analysis firm, said that bank foreclosures declined by 3% in May from April, although the May foreclosures pace was still 1% higher than in May 2009.

($1 = €0.81)

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