US home buying contracts rise in August for second month

04 October 2010 18:44  [Source: ICIS news]

WASHINGTON (ICIS)--The pace of US home buying rose by 4.3% in August from July, the National Association of Realtors (NAR) said on Monday, noting that contracts signed for residential properties have risen for two consecutive months.

The association said that its pending home sales index rose by 3.4 points or 4.3% in August to 82.3 from the revised 78.9 index level reported for July.

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 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.

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

The renewed upturns in July and August are seen as possible evidence that housing demand may be picking up, even without the stimulus of the expired federal tax credit.

NAR chief economist Lawrence Yun said the improving pending sales data for July and August “are consistent with a gradual improvement in home sales in upcoming months”.

“Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” Yun said.

However, Yun cautioned that a sustained recovery in the crucial US housing sector “still depends on job creation and an accompanying rise in consumer confidence”.

The US jobless rate rose slightly to 9.6% in August from the 9.5% unemployment figure that had held steady for June and July after peaking at 10.1% in October 2009.

With the unemployment rate still high, even those US workers with jobs remain uncertain about employment and consequently are reluctant to take on such a major debt obligation as a home mortgage loan.

Yun also cautioned that housing affordability could shift quickly if mortgage loan rates should begin to rise. He noted that commodity and wholesale prices recently have begun to edge upward, raising concerns about future inflation pressures that in turn could bump mortgage rates higher.

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By: Joe Kamalick
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