US pending home sales make an unexpected gain in July

02 September 2010 19:03  [Source: ICIS news]

WASHINGTON (ICIS)--US pending sales of existing homes rose by 5.2% in July from June, housing industry officials said on Thursday, providing some positive news for the real estate market that has been hammered by a succession of negative reports.

The National Association of Realtors (NAR) said its pending home sales index rose to 79.4 in July from the downwardly revised index level of 75.5 in June, an increase of 3.9 points and a gain of 5.2%.

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 with a month or two.

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

The index was launched in 2001 with the baseline figure set at 100.

The pending sales index had been in decline since its recent peak of 112.4 in October 2009 before seeing an upturn in March and April this year when a federal tax credit for home buyers provided a stimulus for sales.

But when the tax credit programme expired at the end of April, the index fell sharply to 77.7 in May and 75.5 in June.

Many housing economists had expected the pending index to decline further, so the modest upturn in July marks a welcome change of direction.

The rare positive indicator for the US housing market comes in the wake of last week’s bad-to-worse July figures for existing home sales and sales of new single-family residences.

NAR chief economist Lawrence Yun attributed the July improvement in pending sales to extremely affordable home prices and record low mortgage rates.

And he suggested that the upturn might continue.

“Affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates,” he said.

“The loan underwriting standards are tighter, but home buyers can improve their chances of getting a loan by staying well within their budget,” he added.

However, he noted that July’s improved pending home sales level was still 19% below the pace seen in the same month of 2009.  The July index also is nearly 30% below the recent peak in October of last year.

Yun cautioned that even if the July index gain raises the possibility of ongoing improvement for the sector, it would be a long recovery process.

“Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” he said.

The US housing market - especially new home construction - is a key downstream consuming sector for chemicals and resins.

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