Important Real Estate Report and the Effect on USD

09/24/2009 12:01 am EST

Focus: FOREX

Today (September 24), August existing home sales will be released at 10:00 ET. The report measures the level of sales of existing homes in the US. The existing home sales report is a good indicator of activity in the US housing market and is considered a reliable gauge of demand. The trade generally looks to compare the existing home sales report with existing home sales in the prior month and focus on two key components of the report: The inventory of homes for sale and the median sale price.

A strong market for housing could point to a better economic environment for the US, and therefore, greater demand for the greenback.

July existing home sales rose by 7.2% to 5.24 million units. The annual rate of 5.24 million units is compared to 4.89 million units in June. Economists had expected a rise of 5 million units for the July existing home sales. The monthly existing home sales gain was the largest on record. A 12.5% surge in condominium sales was responsible for most of the improvement in the July existing home sales report. The inventory of homes remained high and was unchanged at 9.4 months. The medium home sale price fell 2% to $178,400 and remains down 15% y/y. According to the chief economist at the National Association of Realtors, Yun, the July existing home sales confirms that the housing market has decisively turned for the better. Yun attributes the improvement of existing home sales to buyers taking advantage of the housing stimulus tax credit and improved housing affordability. The stimulus plan included an $8,000 tax credit for first-time homebuyers. Housing affordability has greatly improved, with 30-year mortgages averaging 5% and home prices falling more than 30% since Q2 2006.

Existing home sales are expected to rise for the fifth month in a row in August. August existing home sales are expected to rise 2.2% to 535 million units, compared to 524 million last month. The August report is expected to confirm that the US housing market has reached bottom.

Distressed sales accounted for 31% of all existing home sales in July. The biggest risk to the continued improvement in existing home sales is the fact that the inventory of existing homes remains high and has been largely unchanged since December. With foreclosures reported at a record high in Q2, the continued sale of distressed homes means that the inventory of existing homes will likely remain high for some time and that the price decline in existing home sales has most likely not yet reached a bottom.


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By the Staff at Easy-Forex.com

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