US pending home sales on road to recovery

03 June 2009

Pending sales of previously occupied homes in the US continue to bounce back for the third month in a row allaying fears of a deepening crisis in the housing sector as a result of the global economic meltdown.

The pending home sales index, a widely watched indicator of existing housing market condition computed by the National Association of Realtors (NAR), showed a growth of 6.7 per cent in April at 90.3 compared with 84.6 in March, registering the biggest gain since October 2001 when the index rose 9.2 per cent, the NAR report said.

Analysts projected a much lower growth of 0.5 per cent in pending home sales for April. Year-on-year, the index was up 3.2 per cent from 87.5 in April 2008.

It was the slump in US housing market last year which triggered the unprecedented global financial crisis, the deepest one since World War II.
 
The pending home sales index is considered as a measure of direction of movement of the housing market. It is based on agreed purchase contracts for previously occupied homes and generally there is up to two months time lag between a contract and a completed deal and as such it is an indicator of future sales of previously occupied homes.

Region-wise, the Northeast pending sales index soared 32.6 per cent in April followed by the Midwest 9.8 per cent and the West which increased 1.8 per cent. However, the South showed a marginal decline of 0.2 per cent.
 
The spurt in the index props up the contemplation that the stimulus measures taken by the government have started yielding positive results.
 
The recent buying activity was boosted mainly by falling home prices, record low mortgage rates and the government's tax incentives to first-time home buyers.
 
"Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market," said Lawrence Yun, chief economist for NAR.

"Since first-time buyers must finalise their purchases by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers,'' Yun added.
 
Analysts believe this is another sign of bottoming out of the housing market and soon the prices would stabilise. They expect that home sales would pick up in the coming months.