Forex Market Commentaries - The Chicken And Egg Story

It's The Chicken And Egg Story

Mar 27 • Market Commentaries • 2753 Views • Comments Off on It's The Chicken And Egg Story

So which comes first? Jobs or home sales?

Purchase contracts to purchase previously owned homes in America, unexpectedly dropped last month, suggesting a loss of momentum in the housing market after recent signs of improvement.

The National Association of Realtors (NAR) reported its Pending Home Sales Index, based on contracts signed in the prior, dipped by 0.5% to 96.5. Signed contracts become sales after a period of approximately a month or two. Signed contracts are defined by purchase agreement that have deposits but are awaiting financing and legal paperwork so the purchase can be completed.

The report was the latest in a series to suggest a slowdown in the tentative housing market recovery in February and a weak start to the spring selling season. Although this winter season has been unseasonably warm, this usually stimulates purchases earlier.

Given that contracts were up 1.5% between January and February, there is a chance that home resale’s could rise in March, economists said. But this is unlikely. Economists had expected pending home sales to advance 1.0% in February after rising 2.0% the prior month. Contracts signed were up 9.2% in the 12 months to February.

US financial markets were little moved by the data, with investors taking their cue from Federal Reserve Chairman Ben Bernanke’s cautious comments on the jobs market, which implied the US central bank’s monetary policy stance will remain accommodative for a while. Home sales are only expected to actually increase once the jobs market firms.

Additional negative news on the US home front was revealed today as  home prices fell for the fifth month in a row in January to the lowest level since early 2003. The Case-Shiller index dropped 0.8% in the first month of 2012. The three-month rolling index includes transactions that took place from November to January.

Over the past 12 months, prices have fallen 3.8% even though the U.S. economy has shown increasing signs of recovery.  The federal government’s index for home prices was unchanged in January, but more recent data suggest prices might be stabilizing.


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In February, for example, prices for new homes jumped 6.1%, based on a preliminary government report. And prices for existing homes rose by 0.3% last month to mark the first year-over-year increase since November 2010, according to the National Association of Realtors.

For one thing, unusually warm winter weather may have helped home sales in early 2012. What’s more, many homeowners still face the threat of foreclosure and banks hold a sizable number of vacant properties after the prior owners failed to make their payments.

Eventually those homes will go up for sale and help prevent prices from rising quickly. The massive amount of foreclosed homes and homes waiting for foreclosure will continue to dampen the market for a long time, some neighborhoods and developments have as many as 25% in foreclosure with no potential buyers which drives down local prices and values, compounding the problems of home owners.

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