US pending home sales show sharp gain in August

08 October 2008 18:13  [Source: ICIS news]

WASHINGTON (ICIS news)--US pending home sales rose sharply in August as low real estate prices and interest rates combined with tax incentives to lure buyers back into the long-troubled housing sector, national market analysts said on Wednesday.

The National Association of Realtors (NAR) said its index of pending home sales jumped 7.4% in August to 93.4 from July’s revised reading of 87.0.

The August pending home sales index of 93.4 is nearly 9% higher than the measure taken in August 2007 and is the highest reading since June 2007 when the index was at 101.4, the association noted.

The housing industry, especially new home construction, is a crucial downstream consuming sector for US chemicals manufacturers.

A residential property sale is considered pending when a contract has been signed for purchase of a home but the transaction has not been closed.

A pending sale usually is completed within one or two months of contract signing, so the association’s pending home sales index is seen as a forward-looking indicator of housing activity.

The increase recorded in August is believed in part to reflect the $7,500 (€5,475) federal tax credit that was made available beginning 1 August for first-time home buyers under the Housing and Economic Recovery Act passed by Congress and welcomed by home builders and the chemicals industry.

The August increase “is a significant gain”, said Walter Molony, spokesman for the association.

“We can’t say that this marks a turnaround for the sector, but this is a very encouraging sign,” he said.

Molony cautioned, however, that the August increase in pending home sales “might be temporary”.

“We might see one month improve, then the next month be steady,” he said.  “But in the long term we believe the housing sector will improve because of underlying pent-up demand among buyers on the sidelines.”

The association also noted that the ongoing disruptions to credit financing, which began to accelerate sharply in September, could have negative impact on the pending contracts signed in August if home buyers ultimately are not able to secure mortgage financing.

“We are hopeful that most of the [pending sales] increase in August will translate into closed existing-home sales,” said association chief economist Lawrence Yun.

($1 = €0.73)

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Author: Joe Kamalick
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