Pending Home Sales Jump On Pent-Up Demand

Source : The Business Times, October 9, 2008

(NEW YORK) Pending sales of existing US homes unexpectedly jumped in August to the highest in over a year, data from a real estate trade group showed yesterday.

The National Association of Realtors (NAR) Pending Home Sales Index, based on signed contracts, rose 7.4 per cent in August to 93.4 from an upwardly revised 87.0 in July on pent-up demand as affordability improved.

The jump may be fleeting, however, as global financial-market chaos has since escalated, some analysts said.

August's reading was 8.8 per cent higher than a year earlier and was the highest since 101.4 in June 2007. Economists polled by Reuters had expected sales to drop by 1.8 per cent.

'What we're seeing is the momentum of people taking advantage of low home prices,' the association's senior economist Lawrence Yun said.

'Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie' in early September, he said. 'August shows some unleashing of pent-up demand before the credit crisis accelerated in September.'

Home funding giants Fannie Mae and Freddie Mac, the largest buyers of US mortgage bonds, were taken under government control on Sept 7.

Mr Yun said it is unclear how contract activity will be disrupted by the crisis on Wall Street, 'but we're hopeful most of the increase will translate into closed existing-home sales'.

'The pending home sales data is not a signal of where we are going. Foreclosed homes at bargain prices have probably been supporting it,' said Nigel Gault, chief US economist at Global Insight in Lexington, Massachusetts.

'We shall see if these sales close and if those people will go through the transaction because people's finances have worsened since that time,' he added. 'Housing at first impacted the economy and the economy is now impacting housing in a vicious cycle.'

The 30-year fixed mortgage rate will average 6.1 per cent in the fourth quarter, rising to 6.6 per cent by the end of next year, the NAR predicts.

It forecasts US existing home sales at 5.04 million this year, rising to 5.41 million in 2009, and new home sales of 503,000, falling to 471,000 next year. -- Reuters