20 July 2011 17:07 [Source: ICIS news]
The level of existing home sales activity last month was nearly 9% below June last year. when 5.23m residences were sold (also on a seasonally adjusted annual basis).
In June 2010, home buyers were taking advantage of the last days of a federal tax incentive for residential purchases, so that month’s sales figures were higher than they might have been otherwise.
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..
The American Chemistry Council (ACC) estimates that each new home built represents about $16,000 (€11,360) 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 does, the market for new housing was not expected to see significant recovery until the inventory of existing homes for sale can be reduced.
The June downturn in existing home sales ended what NAR chief economist Lawrence Yun said had been modest improvement.
“Home sales had been trending up without the tax stimulus, but a variety of issues are weighing on the market, including an unusual spike in contract cancellations in the past month,” he said.
Yun noted that the market for existing home sales was hampered by tight lending terms at banks and low property value appraisals that are driven by the glut of foreclosed homes for sale.
Contract cancellations occur when a seller and a finance-qualified buyer agree on a sale price, but the pre-closing appraisal of the property indicates it is worth less than the amount being borrowed, so the lending bank backs away and the deal collapses.
The association also said that the inventory of unsold existing homes rose by 3.3% in June from May, with 3.77m homes available for sale, a supply 9.5 months at current sales levels.
In May, the supply of unsold homes represented an inventory of 9.1 months.
In normal economic times, the inventory of homes for sale would be less than a five-month supply.
The downturn in existing home sales for June was in contrast to Tuesday’s report of a sharp gain in sales of new homes in the same month.
“This is an uneven recovery,” Yun said.
NAR president Ron Phipps said that existing home sales should be higher.
“With record-high housing affordability conditions thus far in 2011, we’d normally expect to see stronger home sales,” he said.
But “excessively tight loan standards are keeping many buyers from completing deals”, he added.
Those tight credit problems may get worse soon, the NAR said, as new federal restrictions on home mortgage terms, especially limits on loan amounts, are scheduled to take effect 1 October.
($1 = €0.71)
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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