US pending home sales plunge

Financial Times: 

US pending home sales plunged in November, raising doubts about the strength of the housing market recovery once government support expires.

The National Association of Realtors said on Tuesday that pending home sales, which reflect deals that have been signed but not completed, dropped by 16 per cent from October to November, a much steeper decline than economists had projected. Although sales are up by 15.5 per cent from a year ago, the monthly fall shows how dependent home sales have been on the popular $8,000 (€5,560, £5,000) first-time homebuyer tax credit.

November, spurring a last-minute buying spree throughout October, but was later expanded and extended to the end of April 2010. Pending sales had climbed steadily for nine consecutive months, capped by a strong October which saw them rise to their highest level since 2006 as buyers rushed to meet the deadline.

Some economists have argued that the tax credit has skewed buying patterns and “stolen” from future demand. In spite of signs of stability, high foreclosure rates continue to put pressure on the overall market.

“Once it expires in April we should expect a partial pay back in the summer and early fall,” said Michelle Meyer, an economist at Barclays Capital. “But the underlying trend is still improving.”

Lawrence Yun, chief economist at the NAR, said sales activity would pick up again ahead of the next tax credit deadline. The substantial improvement during the past year signalled the market had gained “sufficient momentum” to stand on its own.

The NAR projects that interest rates will edge higher in 2010, while prices will stabilise and more buying activity will “bring a rough balance” between buyers and sellers.

The US housing sector has given mixed signals in recent months, as buyers responded to uncertainty over government support and the stability of fundamentals. Brian Bethune, chief US economist at IHS Global Insight, said the housing market’s recovery would hinge on unemployment, as the 10 per cent jobless rate has deterred big purchases in favour of renting or consolidating. “The fundamentals are improving, but very gradually.”

In November, sales fell across the US with the steepest declines in the north-east, the mid-west and the south.

Posted via email from Jim Nichols