US pending home sales fall in Aug on tight lending, uncertainty

29 September 2011 18:20  [Source: ICIS news]

WASHINGTON (ICIS)--US pending home sales fell in August from July, the National Association of Realtors (NAR) said on Thursday, blaming continuing tight lending policies among mortgage bankers and persistent consumer uncertainty.

The association said its monthly pending home sales index fell by 1.1 points or 1.2% to 88.6 in August compared with the 89.7 reading recorded in July.

The index has been fluctuating up and down for months but holding within a narrow range indicating an underperforming market, according to NAR chief economist Lawrence Yun.

The index rose in February and March this year, nose-dived in April, turned up again in May and June but fell off anew in July.

The August downturn marks the second straight month of decline.

A residential property sale is listed as “pending” when a contract has been signed but the transaction has not been closed and funded with a mortgage loan. A pending sale usually closes within a month or two of contract signing.

The association's pending home sales index is seen as a reliable forward-looking indicator for near-term expectations in the crucial US housing sector.

The housing industry is a key downstream consumer for the sector, especially the construction of new homes, which drives demand for a wide range of chemicals, resins and derivative products.

While sales of existing homes do not generate a parallel demand for chemicals, those sales do take homes off the market, reducing the inventory of unsold properties. That, in turn, helps build demand for new residential construction - but that demand level also remains low.

Yun said the housing sector should be doing better, simply because there are a lot of young working Americans who are ready to buy and want a home – what economists call “household formations” – but they are being blocked by extraordinarily tight lending criteria.

“We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit,” Yun said.

He said given US population growth, some jobs improvements, rising residential rental rates and stock market gains, “we should be seeing existing home sales closer to 5.5m annually, but we are expecting just over 4.9m this year”.

Yun said in addition to tight lending criteria, overall economic uncertainty also is keeping many would-be home buyers out of the market.

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

By: Joe Kamalick
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