US property: the latest

Wednesday, November 10, 2010. Catherine Deshayes @themovechannel

Pending residential property sales in the US dropped 1.8% in September after two months of gains, the latest index to be published shows...

Pending residential property sales in the US dropped 1.8% in September after two months of gains, the latest index to be published shows...

The National Association of Realtors pending home sales index, a forward looking indicator, slipped to 80.9 in September and remains 24.9% below the surge to 107.8 a year ago when first time homebuyers jumped into the market to take advantage of the tax credit. When it expired in April, however, the NAR index slumped 30% in one month.

Pending home sales fell 5.7% in the Midwest, the largest drop for any area and they are some 33% below those in September 2009. Pending sales dropped 3.5% in the South and 1.7% in the Northeast. Then only region to see a rise in sales was the West where they increased by 3.5%.

But the outlook is still positive, according to Lawrence Yun, NAR chief economist. ‘There appears to be a pent-up demand that eventually will be unleashed as banks resolve their issues with foreclosures and the labour market improves,' he said.

However, he warned that tight credit and appraisals coming in below a negotiated price continue to constrain the market and low interest rates, one of the few enticements left in the market, could be going up in the years to come.

‘Mortgage interest rates currently are bouncing along the bottom but are expected to gradually rise and average 4.9% next year, then rise to 5.8% in 2012,' Yun explained.

He points out that there is a mix of factors in the housing market. ‘Existing home sales have shown some improvement but the foreclosure moratorium is likely to cause some disruption and contribute to an uneven sales performance in the months ahead,' he added.

In examining the underlying fundamentals, Yun expects the Gross Domestic Product to grow 2 to 2.5% over the next two years. With a projection of 1.5 million additional jobs over the next two years, the unemployment rate should decline to 8% by 2013 and return to a normal level of around 6% in 2015.

Existing home sales are forecast to gradually rise, with some occasional dips along the way. ‘For 2011 we should see more than 5.1 million existing home sales, up from about 4.8 million this year. Housing starts are expected to rise to 716,000 in 2011 from 598,000 this year,' Yun said.

‘We've added 30 million people to the US population over the past 10 years but sales are where they were in 2000, so there appears to be a sizable pent up demand that could come to the market once the economy gathers momentum,' he added.

The Pending Home Sales Index is regarded as a leading indicator for the housing sector, based on pending sales of existing homes.


Author - Dan Johnson
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