US Housing Market: Pending Home Resales Rocket 6.7 Per Cent

San Diego, California, 4 June 2009. The green shots of recovery seem to be taking hold with increasing numbers of data points showing either slowing declines or bottom-of-the-cycle increases. Since the USHousing Market dragged the whole world into recession, it needs to turn around to support a recovery, however tepid that might be.

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San Diego, California, 4 June 2009. The green shots of recovery seem to be taking hold with increasing numbers of data points showing either slowing declines or bottom-of-the-cycle increases. Since the USHousing Market dragged the whole world into recession, it needs to turn around to support a recovery, however tepid that might be.

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San Diego, California, 4 June 2009. The green shots of recovery seem to be taking hold with increasing numbers of data points showing either slowing declines or bottom-of-the-cycle increases. Since the USHousing Market dragged the whole world into recession, it needs to turn around to support a recovery, however tepid that might be.

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There are now encouraging signs that this is indeed happening. Most encouraging of all has been the April Pending Home Resales figure, which shot up 6.7 per cent, against an average of economists forecasts of 0.5 per cent. In fact it was the biggest growth for seven years. It was the fourth increase in five months, building on a 3.2 per cent gain in March. Economists had forecast anywhere between minus 2 per cent and 4 per cent.

The Pending Home Resales figure is a measure of the number of contracts signed to buy residential property in the US. It is compiled by the National Association of Realtors. It is not a measure of actual sales, since it precedes full surveying and financing which can take several months. The Existing Home Sales Report is the track of actual activity.

Instead, the Pending Home Resales figure is a leading indicator of the activity a few months down the line. The markets liked the numbers and have been bidding up US homebuilder stocks. So does this signal the start of the recovery in thehousing market? The answer is: maybe.

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House prices in many areas are now cheap relative to median incomes. In particular both investors and residents are buying foreclosed properties which have flooded the market. Home Resales for April came in at 2.9 per cent growth in April. This increase in the difference between pending and actual sales is reflective of financing issues, which tends to be more challenging with foreclosures. It also probably reflects that fact that some contract signers have lost their jobs, feel more job insecurity, or are having wages cut.

Mortgage interest rates bottomed in April and are now rising again. This, together with unemployment expected to hit 9 per cent this month and keep rising, means that there are real chances of the ‘recovery’ running out of steam.

House prices should also give pause for thought. House prices dropped 15 per cent in April from a year earlier, the second worst month on record. Maybe we shouldn’t pop the champagne just yet.

Juan Abdel Nasser, EconomyWatch.com