US pending home sales fall in July for second month

WASHINGTON (ICIS)–US pending home sales declined in July from June, the National Association of Realtors (NAR) said on Wednesday, marking the second consecutive monthly decline, with higher mortgage loan rates and increasing home prices taking the blame.

In its monthly report, the NAR said that its pending home sales index (PHSI) fell by 1.3% in July from June to a reading of 109.5.

The July decline followed a 0.4% easing in June.

The NAR said it also had to revise downward the May index by a full percentage point to a reading of 111.3 from the original estimate of 112.3 issued in late June.

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 a 100 baseline set by the NAR in 2001 to represent an average or healthy pace of pending home sale contracts.

Despite the two-month decline in the pending sales index, NAR chief economist Lawrence Yun said that “the modest decline in sales activity is not yet concerning”.

However, he said, “higher mortgage interest rates and rising home prices are impacting monthly contract activity” in many areas of the country, including the northeast, the Midwest and the west. Sales activity was up for the month in the south.

Despite the downturn, Yun noted that the July PHSI at 109.5 is still 6.7% higher than it was in July last year, and that pending sales have stayed above year-ago levels for the last 27 months.

He cautioned, however, that if new home construction does not pick up in the west, “the region could soon face pronounced affordability problems”.

The July downturn in pending home sales followed news that US sales of new, single-family homes fell by a sharp 13.4% in July from June, a decline that also was blamed on rising loan rates and home prices.

The rate for a conventional, 30-year, fixed-rate mortgage (FRM) rose to 4.58% in August from 4.37% in July. And July had shown nearly a third of a point gain from June’s 4.07%, quite a strong one-month advance. 

In July 2012, the 30-year FRM rate was 3.55%, so the cost of borrowing for a home loan has gained a percentage point in 13 months.

On top of higher loan costs, the recovery itself has helped boost housing costs, with the median price for a home in July nearly 14% higher than a year earlier.

The US housing sector is a major downstream consumer of a broad range of chemicals and resins, both as building materials for new construction and renovations and as components in or production of end-use housing equipment and furnishings.

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