US pending home sales rise, but outlook remains uncertain
Thursday, 15 November 2007
WASHINGTON, Nov 14 (Reuters): Pending sales of previously owned US homes unexpectedly rose in September, but the outlook for the housing market remains weak and there are signs consumers have tightened up on spending.
Pending home sales rose 0.2 per cent in September but were still more than 20 per cent lower than they were a year ago, the National Association of Realtors said yesterday. Wall Street economists had expected pending sales to fall 2.8 per cent.
The stronger-than-expected reading-the first rise since June-gave a lift to prices for US stocks, which were already enjoying a strong rally. The blue-chip Dow Jones industrial average snapped a four-day losing streak and closed up 320 points, or 2.46 per cent, at 13,307.
The Realtors group cautioned that conditions in the housing sector, which has been hit hard by troubles in the subprime mortgage market, will not improve for some time.
"Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year," said the association's chief economist, Lawrence Yun.
A sale is considered as pending when a contract has been signed but the transaction has not closed. While sales usually finalise within one or two months of signing, the pending sales index has given some false signals. While it rose in June, existing home sales have been falling since February.
"The declines in August and July were so big that a pause in the plunge was always a reasonable bet for September. But this does not change the trend, which is still sharply downwards," said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York.
The association said sales of existing homes this year will likely end up 12.5 per cent lower than 2006. It said new home sales looked set to fall 24 per cent, adding that the new homes market will not likely see any improvement until 2009.
A separate report Tuesday showed sluggish growth in retail sales in October as mild weather made buying winter clothing a low priority for US shoppers.
Relatively flat gasoline prices until late October also reined in sales growth in dollar terms, said SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide.
These two factors caused US retail sales, excluding cars, to rise by only 0.2 per cent last month, the weakest gain in three months and sharply below September's 0.6 per cent rise.
"We are still growing but at a slower pace," said Michael McNamara, SpendingPulse's vice president of research and analysis.
A significant spending slowdown before the year-end holiday season, a crucial period for the retail industry, will likely worry investors and the Federal Reserve, which has cut interest rates by three-quarters of a percentage point over the last two months to buffer the economy from the housing slump and credit squeeze.
A recent surge in gasoline prices should inflate overall retail sales in dollar terms in November, SpendingPulse said.
But the spike in gasoline prices, as well as escalating heating oil costs, will cut into the volume of sales in coming months, McNamara said.
Excluding both autos and gasoline, sales rose 0.3 per cent last month, rebounding from an 0.1 per cent dip in September. The SpendingPulse measure of "core" consumer spending-which excludes cars, gasoline and building materials-advanced 0.4 per cent, doubling September's 0.2 per cent rise.
The government will release its survey on October retail sales Wednesday. Economists polled by the news agency predicted that overall sales likely rose 0.2 per cent in October from September, and sales excluding autos likely grew 0.3 per cent.
Pending home sales rose 0.2 per cent in September but were still more than 20 per cent lower than they were a year ago, the National Association of Realtors said yesterday. Wall Street economists had expected pending sales to fall 2.8 per cent.
The stronger-than-expected reading-the first rise since June-gave a lift to prices for US stocks, which were already enjoying a strong rally. The blue-chip Dow Jones industrial average snapped a four-day losing streak and closed up 320 points, or 2.46 per cent, at 13,307.
The Realtors group cautioned that conditions in the housing sector, which has been hit hard by troubles in the subprime mortgage market, will not improve for some time.
"Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year," said the association's chief economist, Lawrence Yun.
A sale is considered as pending when a contract has been signed but the transaction has not closed. While sales usually finalise within one or two months of signing, the pending sales index has given some false signals. While it rose in June, existing home sales have been falling since February.
"The declines in August and July were so big that a pause in the plunge was always a reasonable bet for September. But this does not change the trend, which is still sharply downwards," said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York.
The association said sales of existing homes this year will likely end up 12.5 per cent lower than 2006. It said new home sales looked set to fall 24 per cent, adding that the new homes market will not likely see any improvement until 2009.
A separate report Tuesday showed sluggish growth in retail sales in October as mild weather made buying winter clothing a low priority for US shoppers.
Relatively flat gasoline prices until late October also reined in sales growth in dollar terms, said SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide.
These two factors caused US retail sales, excluding cars, to rise by only 0.2 per cent last month, the weakest gain in three months and sharply below September's 0.6 per cent rise.
"We are still growing but at a slower pace," said Michael McNamara, SpendingPulse's vice president of research and analysis.
A significant spending slowdown before the year-end holiday season, a crucial period for the retail industry, will likely worry investors and the Federal Reserve, which has cut interest rates by three-quarters of a percentage point over the last two months to buffer the economy from the housing slump and credit squeeze.
A recent surge in gasoline prices should inflate overall retail sales in dollar terms in November, SpendingPulse said.
But the spike in gasoline prices, as well as escalating heating oil costs, will cut into the volume of sales in coming months, McNamara said.
Excluding both autos and gasoline, sales rose 0.3 per cent last month, rebounding from an 0.1 per cent dip in September. The SpendingPulse measure of "core" consumer spending-which excludes cars, gasoline and building materials-advanced 0.4 per cent, doubling September's 0.2 per cent rise.
The government will release its survey on October retail sales Wednesday. Economists polled by the news agency predicted that overall sales likely rose 0.2 per cent in October from September, and sales excluding autos likely grew 0.3 per cent.