US existing home sales fall 0.8% in April, tight credit blamed

19 May 2011 17:50  [Source: ICIS news]

 WASHINGTON (ICIS)--US sales of existing homes fell by 0.8% in April from March, the National Association of Realtors (NAR) said on Thursday, and housing experts said home sales would be stronger but for overly strict bank lending criteria.

The association said that sales of existing homes in April were at a seasonally adjusted annual pace of 5.05m compared with the rate of 5.09m in March.

The April decline also puts the month’s sales performance nearly 13% below the pace seen in April 2010, although the NAR noted that in April last year a federal tax credit for home buyers was still in force and had spurred purchases before expiring the following month.

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 American Chemistry Council (ACC) estimates that each new home built represents some $16,000 (€11,200) worth of chemicals and derivatives used in the structure or in production of component materials.

While sales of existing homes do not directly benefit chemicals production nearly as much as new home construction, the market for new housing was not expected to see a significant recovery until the bloated inventory of existing homes for sale can be reduced.

NAR chief economist Lawrence Yun said that the existing home sales market is underperforming.

“Given the great affordability conditions, job creation and pent-up demand, home sales should be stronger,” he said.

Yun blamed “unnecessarily tight credit [that] is continuing to restrain the market”.  He also cited a continuing problem with low appraisal values on existing homes being sold.

A home buyer and seller agree on a price for the home, but a pre-loan appraisal often will value the property at a level below the agreed selling price, and the deal falls apart.

The NAR said that something more than 10% of would-be sales were cancelled last month because low appraisals scuttled the deals.

In addition to those sales losses, Yun said restrictive lending standards keep existing home sales 15-20% below where they otherwise might be.

NAR chairman Ron Phipps said that banks should return to “sensible standards”.

“Banks needn’t be so stingy as to only lend to those with the highest credit scores,” he said.

The downturn in existing home sales for April came on the heels of other bad news for the US housing sector.

US new home construction fell sharply by 10.6% last month, and building permits declined by 4%, indicating that there was little hope for an upturn in housing construction anytime soon.

Home builders also reported very low expectations for a recovery, according to a recent survey.  

($1 = €0.70)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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