US pending home sales fall in April, rattling Wall Street

30 May 2012 19:43  [Source: ICIS news]

WASHINGTON (ICIS)--US pending home sales fell sharply in April from March, an unexpected downturn following several months of improvement, and the drop helped trigger a steep decline on Wall Street on Wednesday.

The National Association of Realtors (NAR) said that its pending home sales index (PHSI) fell by 5.5% in April to a reading of 95.5 compared with the March level of 101.1.

The downturn came just a month after NAR cited a recent string of monthly improvements in pending sales as evidence that “the housing market has clearly turned the corner”.

The unexpected drop in pending sales was seen as particularly worrisome for the long-troubled US housing sector because the PHSI is regarded as a market bellwether.

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 sales index is seen as a reliable, forward-looking indicator for near-term expectations in the US housing sector.

The index is measured against the 100 baseline set by the NAR in 2001 to represent an average or healthy pace of pending home sales contracts.

In the wake of April’s pending sales index downturn, the Dow Jones Industrial (DJI) average fell more than 160 points in midday trading, wiping out gains seen on Tuesday.

The Dow decline also was attributed to renewed concerns among traders about the ongoing eurozone crisis and a possible sovereign debt default by Greece and a growing sense that Athens may abandon the euro.

However, NAR chief economist Lawrence Yun dismissed the April downturn in pending home sales as just a “one-month setback” that stands in contrast to “many moths of gains”.

Yun said that US housing market conditions are fundamentally improving, and he noted that April’s pending sales index of 95.5 is 12 points or 14.4% above the April 2011 index measure of 83.5.

“Home contract activity has been above year-ago levels now for 12 consecutive months [and] the housing recovery momentum continues,” he said.

“Housing market activity has clearly broken out at notably higher levels and is on track to see the best performance since 2007,” Yun said.  That year marked the beginning of the US housing market collapse.

“All of the major housing market indicators are expected to trend gradually up,” he added.

The housing industry, especially new home construction, is a key downstream consuming sector for a broad range of chemicals, resins and derivative products.

The April pending home sales decline is one among a mixed bag of recent housing sector indicators.

On Tuesday, Standard & Poors (S&P) reported that US home prices fell in the first quarter this year to new post-crisis lows.  But a week ago, the Commerce Department reported a 3.3% boost in new home sales for April.

And despite March declines in sales of both new and existing homes, US builders recently said they have somewhat more confidence in near-term prospects for the housing market.

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

By: Joe Kamalick
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