US sales of existing homes fall 3.5% in July, banks blamed

18 August 2011 18:44  [Source: ICIS news]

WASHINGTON (ICIS)--US sales of existing homes fell by 3.5% in July from June, the National Association of Realtors (NAR) reported on Thursday, saying that mortgage banks are keeping the housing market in the doldrums with overly tight lending criteria.

In its monthly report, the association said that existing home sales were at a seasonally adjusted and annual pace of 4.67m units in July, down from the upwardly revised figure of 4.84m in June.

Those figures are for all existing home sales, including condominiums, town-homes and co-ops. Within the core market for single-family homes, existing sales were down somewhat more at 4% compared with June.

July’s sales of existing homes also marked a 13.5% decline from the most recent high in January this year when 5.4m units were sold (also on seasonally adjusted annual basis).

During the US housing boom years of 2003-2006, existing homes were selling at an annual rate of 6m-7m units.

NAR chief economist Lawrence Yun noted that July’s decline in sales comes despite the most affordable market for existing homes in more than 40 years. 

Home prices are near historic lows, according to NAR data. Home mortgage interest rates are at their lowest level in more than 50 years, according to US secondary mortgage loan marketer Freddie Mac.

In normal times, first-time home buyers would be racing into the market, but Yun said that both new buyers and existing homeowners who want to move are being blocked by lenders.

“Affordability conditions this year have been the most favourable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” Yun said.

In the wake of the 2006-2008 housing market crash, and with millions of foreclosed properties and non-performing loans on their books, mortgage lenders are demanding high credit ratings and larger down-payments from prospective borrowers.

Those “unnecessarily restrictive practices” are turning away many would-be buyers and blocking what Yun said would otherwise be “a much more robust housing market that could stimulate additional economic activity and create jobs”.

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 (€11,200) 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 does, the market for new housing was not expected to see significant recovery until the inventory of existing homes for sale can be reduced.

Yun said that the market for existing home sales also is depressed because home loans that otherwise might have been approved fall through when the house being bought is appraised at a value less than the agreed selling price and the bank backs away from the deal.

Those property appraisals are being kept low because of the continuing flood of foreclosed homes on the market.

The July inventory of existing homes for sale, about 3.65m units, represents a 9.4-month supply at current sales rates, an increase of 2.2% from the 9.2-month inventory in June.

That inventory of homes for sale has been climbing more or less steadily since January this year when the supply of existing residential properties on the market was only 7.5 months’ worth.

During normal economic times, the inventory of available existing homes for sale would represent only about a 5-month supply or less.

($1 = €0.70)

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

By: Joe Kamalick
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