US pending home sales fall in June, decline likely to continue

03 August 2010 17:10  [Source: ICIS news]

WASHINGTON (ICIS)--US pending sales of existing homes fell by 2.6% in June from May, a national housing trade group said on Tuesday, noting that the decline represented continuing after-effects of the expired home buyer tax credit that ended in April.

The National Association of Realtors (NAR) said its pending home sales index declined to a level of 75.7 in June from the 77.7 measure recorded in May.

May had seen a precipitous 30% fall-off from April after the year-long federal tax credit of $8,000 (€6,080) for home buyers lapsed on 30 April.

NAR’s pending home sales index is based on a benchmark of 100, set for the year 2001 when the index was established. 

The index was at 110.9 in April when the effect of the federal stimulus programme was at its peak.

The US housing market is a key downstream consuming sector for a wide variety of chemicals and resins. 

While new home construction is the sector’s principal generator of demand for chemicals, the status of existing home sales is critical because few new residential structures would be built when there is a glut of existing homes on the market.

The June pending home index suggested that it could be many months before the supply of existing homes could be significantly lowered.

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

NAR chief economist Lawrence Yun warned that “there could be a couple of additional months of slow home sales activity before picking up later in the year - provided the job market continues to improve”.

The association noted that through May this year, the US economy had generated about 500,000 new private sector jobs, or approximately 100,000 new jobs per month. 

However, the US economy must generate 100,000 jobs per month just to meet work demand by young people entering the job market for the first time. Much higher job creation rates would be needed to reduce the persistent US unemployment level of 9.5% and generate fresh demand for housing.

The decline in pending home sales for June follows earlier reports of a fall in completed sales of existing homes in June and of new home sales still near record-low levels.

($1 = €0.76)

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