Sales of existing homes climbed in July from an eight-month low, showing the cheapest mortgage rates on record are underpinning a market struggling to join the U.S. economic recovery that began three years ago.
Purchases increased 2.3 percent to a 4.47 million annual rate, figures from the National Association of Realtors showed today in Washington. The data were posted on the group’s website ahead of the usual 10 a.m. release. The median forecast of 73 economists surveyed by Bloomberg called for a rise to a 4.51 million rate.
“This is a continuation of good news, but we’ve got to continue to build momentum,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who forecast sales would rise to 4.46 million. “We’ve still got a long way to go because the level is so low.”
Restrictive lending rules, a lack of inventory and lingering unemployment may be preventing a rebound to the 5 million to 5.5 million sales pace that the real-estate agents’ group said constitutes a “normal” market. Minutes of the Federal Reserve’s most recent meeting showed today that many policy makers said more stimulus would be needed unless the economy exhibited signs of a durable pickup.
Stocks erased earlier losses after the Fed minutes, with the Standard & Poor’s 500 Index rising less than 0.1 percent to 1,413.49 at the 4 p.m. close in New York after falling as much as 0.5 percent. The S&P Supercomposite Homebuilding Index jumped 3.1 percent.
Japan had a wider-than-estimated trade deficit in July as Europe’s sovereign-debt crisis and a slowdown in China dragged down exports and nuclear shutdowns boosted energy imports, the Finance Ministry said today in Tokyo.
Estimates for existing-home sales, tabulated when a contract closes, ranged in the Bloomberg survey from 4.3 million to 4.8 million. The prior month’s pace was unrevised at 4.37 million, the lowest since October.
Compared with a year earlier, purchases increased 11 percent before adjusting for seasonal variations.
The number of previously owned homes on the market climbed 1.3 percent to 2.4 million. At the current sales pace, it would take 6.4 months to sell those houses compared with 6.5 months at the end of the prior month. The group said it considers six months’ supply “normal.”
A shortage of inventory of lower-priced homes is making it more difficult for first-time buyers to enter the market, Lawrence Yun, NAR chief economist, said in a news release.
First-time buyers made up 34 percent of all sales last month, up from 32 percent in July 2011. Under “normal conditions,” entry-level purchasers account for about 40 percent, the Realtors group said.
All-cash transactions accounted for about 27 percent, down from 29 percent in June. Investors, who make up the bulk of the all-cash deals, made up 16 percent of sales last month, compared to 18 percent at the same time last year.
Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 24 percent of the total, less than the share in the prior month and down from 29 percent in July 2011.
“It’s a meaningful decline,” Yun said in a news conference today as the figures were released. Of the distressed sales, 12 percent were foreclosed properties and 12 percent were short sales, he said.
The data were posted on the group’s website ahead of the typical release time because “somebody made a mistake in creating the link,” NAR spokesman Walter Molony said. “We prepare the links ahead of time. They’re not supposed to go live until 10 o’clock. It went up accidentally when it wasn’t supposed to.”
Purchases increased in three of four regions, led by a 7.4 percent gain in the Northeast. Purchases in the West were unchanged.
The jump in the Northeast, where properties tend to be more expensive, probably contributed to a gain in values nationwide. The median price of an existing home jumped 9.4 percent in July from a year earlier, the biggest 12-month rise since January 2006. It rose to $187,300 from $171,200 in July 2011, today’s report showed.
The Fed has said it will “closely monitor” economic data and financial developments, according to a statement after its July 31-Aug. 1 gathering.
Pace of Recovery
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the Federal Open Market Committee’s gathering released today in Washington.
The minutes also reflected discussion of the merits of purchasing Treasury securities relative to mortgage-backed securities. While “some” members worried about the impact on debt markets, a staff analysis showed “substantial capacity for additional purchases without disrupting market functioning.”
Policy makers “agreed to defer a decision on this matter” until the September meeting when they will update their economic forecasts.
Existing-home sales have improved since reaching a low of 3.39 million at an annual rate in July 2010. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.
Sales of new homes, counted when contracts are signed, may have rebounded to a 365,000 annual rate in July from 350,000 the prior month, the survey median showed ahead of Commerce Department figures due tomorrow.
Newly constructed houses accounted for 6.7 percent of the residential market in 2011, down from a high of 15 percent during the boom of the past decade.
Construction companies are noting the increase in demand. Bloomfield Hills, Michigan-based PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, posted a better-than-estimated profit and a 32 percent jump in orders in the second quarter. AV Homes Inc. (AVHI), which develops properties in Florida and Arizona, said it closed on 41 percent more houses in the second quarter compared to a year earlier, and contracts signed, net of cancellations, more than doubled.
“The housing market continues to gain momentum,” Allen Anderson, chief executive officer of Poinciana, Florida-based AV Homes, said on an Aug. 7 earnings conference call. “We are no longer battling the headwinds of the housing recession.”
Reports last week confirmed housing is improving. Building permits, a proxy for future work, jumped to a four-year high in July even as residential starts fell from the fastest pace in more than three years. The National Association of Home Builders/Wells Fargo index of builder confidence rose in August to the highest level since 2007.
Homes are more affordable. The average rate on a 30-year fixed mortgage dropped to 3.49 percent in the week ended July 26, the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac.
Foreclosures are abating, though they still pose a threat as borrowers struggle to pay bills. The mortgage delinquency rate, or the share of home loans at least 30 days late, rose in the second quarter from the previous three months, the first gain in a year, the Mortgage Bankers Association reported.
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