Pending Home Sales Fell By More Than Expected In July

(RTTNews) - Pending home sales fell by more than expected in the month of July, according to a report released by the National Association of Realtors on Tuesday, with the decrease likely to add to recent concerns about the strength of the housing market.

The report showed that pending home sales fell by 3.2 percent in July following an upwardly revised 5.8 percent increase in June. Economists had expected pending home sales to fall by 1.4 percent compared to the 5.3 percent increase originally reported for the previous month.

Noting that home sales continue to edge up and down, NAR chief economist Lawrence Yun said, “Pending home sales are oscillating month-to-month, with the long-term trend essentially flat.”

The bigger than expected decrease in pending home sales was partly due to weakness in the Northeast and the West, where pending home sales fell by 7.5 percent and 10.6 percent, respectively.

Pending home sales in the South were unchanged compared to the previous month, while pending home sales in the Midwest increased by 2.8 percent.

Yun said that there are currently many ambiguities in the marketplace, noting that the economy is producing more but still cutting jobs.

“Even with the Treasury Department’s direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria, or if it will remain overly stringent,” Yun said, “The housing market outlook is very cloudy.”

Looking ahead, NAR said it expects existing home sales to total 5.01 million in 2008 before rising 6.9 percent to 5.35 million in 2009. Existing home prices are forecast to rise by 2 to 4 percent in 2009 after falling by an average of 4 to 7 percent this year.

NAR added that it expects new home sales to total about 508,000 in 2008 and 463,000 in 2009, down significantly from 775,000 in 2007.

Over the weekend, the Treasury Department announced that it was taking control over mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), who own or back about half of the nation’s mortgage debt. The news renewed hopes for a turnaround in the housing market.

As part of the plan, the Federal Housing Finance Agency will assume the power of management at the companies while also replacing the chief executives at both firms. Additionally, the plan calls on the Treasury Department to purchase $5 billion of mortgage-backed securities within the next month.

In an interview with RTT News, Hugh Johnson, chief investment officer for Johnson Illington Advisors, said that the rescue “doesn’t mean things are in the past” for the housing crisis. In fact, he is predicting that housing problems will continue to be a “drag on the economy well into 2009.”

Meanwhile, analyst Jason M. Goldberg of Lehman Brothers stated in a note to clients, “Bottom line, to the extent these actions help to strengthen the housing market and/or aid stability in the financial markets, we would expect the banks to be beneficiaries.”

Goldberg added, “One area of concern is bank exposure to GSE preferred stock. We view this as manageable for our coverage. Still, we note other industry challenges remain.”

In other economic news, the Department of Commerce released its report on wholesale inventories and sales in the month of July on Tuesday, showing a bigger than expected increase in inventories along with a modest decrease in sales.

The report showed that wholesale inventories increased by 1.4 percent in July following a downwardly revised 0.9 percent increase in June. The increase exceeded economist estimates of an increase of about 0.7 percent.

The bigger than expected increase in wholesale inventories reflected growth in wholesale inventories of both durable and non-durable goods.

At the same time, the Commerce Department said that wholesale sales edged down 0.3 percent in July after surging up by 3.0 percent in June. A decrease in wholesale sales of non-durable goods more than offset a modest increase in wholesale sales of durable goods.

With wholesale inventories rising and wholesale sales falling, the wholesale inventories/sales ratio edged up to 1.07 in July from 1.06 in June.

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