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July Pending Home Sales Provide Further Evidence of Housing Recovery

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July Pending Home Sales Provide Further Evidence of Housing Recovery

Recent economic data out of the United States has been pointing towards a slow recovery in the economy and housing has now joined the flow of better-than-expected numbers.

Today’s release of the index of pending sales of existing homes for the month of July, prepared by the National Association of Realtors, shows a growth of 2.4% to 101.7 from last month’s reading, according to the WSJ. On a year-on-year basis, the index was higher by 12.4%. The index also surpassed economists’ expectations, who had called for only a 1% increase over the last month.

It is significant that this is the best number reported since April 2010 and is indicative of nascent strength returning to the beleaguered housing market.

Yesterday, evidence of this was seen in home prices, which are tracked by the S&P/Case-Shiller index of 20 metropolitan areas. The survey revealed that prices of homes climbed 0.5% on a year-on-year basis with reference to June last year. The number was significant more for the fact that a positive reading emerged after a streak of declines through 20 months.

The above data confirms research by Credit Suisse Group AG (NYSE:CS) whose Monthly Survey of Real Estate Agents also pointed to rising home prices during the past four months. Credit Suisse Group AG (NYSE:CS) expects this improving trend to continue and thereby have a beneficial impact on the bottom lines of home-builder companies during the second half of 2012 and in 2013. The change of trend should help sentiment and reinforce attractive prices with a feeling of confidence that the worst of declines is over, thereby releasing on-the-fence demand.

It may be noted, however, that the increase in prices may vary from region to region according to the weighting accorded by the index computation method. Credit Suisse Group AG (NYSE:CS) points, for example, to Toll Brothers Inc (NYSE:TOL) and Hovnanian Enterprises, Inc. (NYSE:HOV), companies which “have a significant high-rise NYC exposure, where trends have been much stronger.”

Luxury home builder Toll Brothers Inc (NYSE:TOL) reported a 46 percent rise in net income for its third quarter. Toll Brothers Inc (NYSE:TOL) earned $61.6 million (36 cents a share), compared to $42.1 million (25 cents a share) a year ago, a substantial beat over analysts’ estimates of 18 cents a share. “We are enjoying the most sustained demand we’ve experienced in over five years,” chief executive Douglas Yearley said. Home deliveries rose 39 percent, while the average price rose from $569,000 to $576,000.

For its second quarter Hovnanian Enterprises, Inc. (NYSE:HOV) reported a strong set of numbers. Net income came in at $1.8 million against a loss of $72.7 million in the same quarter last year and broke a string of eight consecutive quarterly losses.

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