More Americans signed contracts in May to buy previously owned homes than at any time in more than six years, a sign of bigger progress in the industry.
The index of pending home sales jumped 6.7 percent to 112.3, the highest since December 2006, figures from the National Association of Realtors showed today in Washington. The increase exceeded all estimates in a Bloomberg survey of economists and was the biggest since April 2010.
More contract signings show Americans who had been holding off on purchases entered the market as mortgage rates started to climb, reaching an almost two-year high this week. Further gains in sales of previously owned properties will probably encourage a pickup in purchases of home furnishings, spurring economic growth.
“The housing market is pretty healthy,” Guy Lebas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “When you buy a home, either new or existing, you’ve got to furnish it. It’s sort of the secondary benefits of greater home sales that support growth.”
Pending sales fell a revised 0.5 percent in April, previously reported as a 0.3 percent gain.
Estimates for pending home sales ranged from a decline of 0.9 percent to an increase of 5.5 percent, according to 43 economists surveyed by Bloomberg.
Economists consider pending home sales a leading indicator because they track contract signings. Existing homes sales are tabulated when a contract closes, usually a month or two later.
Today’s Realtors’ report showed pending home sales increased 12.5 percent from May 2012 on an unadjusted basis.
“Even with limited choices it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” the group’s chief economist Lawrence Yun said in a statement. “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.”
The average rate on a 30-year fixed mortgage surged to 4.46 percent this week, the highest since July 2011, according to figures from Freddie Mac. The increase from 3.93 percent in the prior week was the biggest since April 1987. In November, the average rate reached a record low of 3.31 percent.
At the current rate, the monthly payment on a $300,000 30-year loan has increased to $1,513 from $1,322 in May.
“Interest rates have moved higher and mortgage rates have moved from their unprecedented low point towards more normalized levels,” Stuart A. Miller, chief executive officer of Lennar Corp., third-largest U.S. homebuilder by revenue, said on a June 25 earnings call.
“While this movement is not a surprise given the improvement in economic conditions and in the housing market in general, it seems that the timing has caught the investor community off-guard and has shaken investor confidence in the overall housing recovery,” he said.
Three of four regions showed an increase in contract signings from a month earlier, including a 10.2 percent gain in the Midwest and a 16 percent increase in the West, today’s Realtors report showed.
The index level for pending home sales increased from 105.2 in April on a seasonally-adjusted basis. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the NAR.
Purchases of existing houses increased 4.2 percent to an annualized rate of 5.18 million, the most since November 2009, the Realtors’ figures showed earlier this month. The median selling price surged 15.4 percent, the largest month-over-month increase since October 2005, to $208,000.
A lack of inventory has driven up prices, while encouraging new-home purchases and construction. Housing starts rose 6.8 percent in May and permits to build single-family houses rose to a five-year high, the Commerce Department said June 18.
Job growth is helping stoke demand. Payrolls expanded by 175,000 workers in May, more than forecast, and the jobless rate rose to 7.6 percent from 7.5 percent as the number of people entering the workforce outpaced the number of jobs available.
To contact the editor responsible for this story: Christopher Wellisz at email@example.com