Daily Forecast Update: Pending Home Sales, Construction, ISM

September 1, 2009

By Ken Fears, Manager, Regional Economics

Home sales should continue their upward pattern as the real estate market moves into the early fall. Strong housing demand will buttress confidence in the housing and financial markets which will in turn help the overall economy.
Construction in the single-family residential sector continues to rise reflecting overall sales and price strength.
An increase in construction will help to stabilize employment and bodes well for future economic growth.
Financing issues in the commercial sector are weighing on private non-residential and multi-family construction alike. Resolution of this issue is critical to the economic recovery.
Like construction, the manufacturing sector, particularly the auto sector, has done well in recent months on a surge in government subsidized demand. The momentum in these industries has aided consumer confidence, which will grease the wheels for a protracted albeit restrained expansion.

The NAR Pending Home Sales Index rose 3.2% in July following a 3.6% increase in June. The index is up 12.0% compared to a year earlier.
This month's increase was driven by regional patterns. The West and South show increases of 12.1% and 3.1%, respectively, while the Northeast and Midwest both fell by 3.0% and 2.0%, respectively.
Improvement in the index bodes well for the confidence which will provide the national market and economy with momentum going into the fall. However, the latest improvement has a strong regional component, leaning towards recovery in markets where distressed sales are driving high sales volumes and stabilizing prices.

The Census released its July report on construction spending which showed a 0.2% decline in total spending.
Most of the decline was concentrated in the private non-residential (-1.2%) and public (-0.7%) sectors. Tight state & local budgets weighed on the public sector demand, while the commercial sector continues to find financing scarce.
Spending in the private residential sector increased 2.3% lead by a 7% jump for the single family sector, the second straight increase, while the multi-family sector dropped 3.3% following a decline in June.

The Institute for Supply Management's manufacturing index jumped 4 points to 52.9 this month. A reading over 50 indicates an expansionary trend.
The improvement was lead by a surge in new orders, which rose 9.6 points to 64.7. Production increased 4 points to 61.9, while back orders rose from 50.0 to 52.5.
Inventories inched up slightly, but remain very low at 34.4. Gains in production will help build inventories, but there is a large gap to fill after months of cost cutting.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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