Sales of previously owned U.S. homes unexpectedly rose in August to the highest level in more than six years as buyers rushed to lock in interest rates before they increased further.
Purchases climbed 1.7 percent to a 5.48 million annual rate, the most since February 2007, figures from the National Association of Realtors showed today in Washington. The median forecast of 79 economists in a Bloomberg survey called for 5.25 million. Other figures showed Philadelphia-area manufacturing expanded at the strongest pace since March 2011.
The housing data reflect transactions begun in June or July, when buyers were trying to get loans at mortgage rates near record lows. The Realtors’ chief economist said sales will probably cool, which combined with figures showing a slump in new-home demand and weaker-than-projected construction explains why the Federal Reserve yesterday decided to maintain stimulus.
“We’ll continue to see increases in home sales and prices, though not as fast as in August,” said Gus Faucher, a senior economist in Pittsburgh at PNC Financial Services Group, which is the best forecaster of existing-home sales over the past two years, according to data compiled by Bloomberg. “The Fed’s decision to hold off on tapering is understandable. We’ll see stronger economic growth toward the end of the year.”
Stocks fell a day after the Standard & Poor’s 500 Index climbed to a record on the Fed’s decision to refrain from cutting stimulus. The S&P 500 dropped 0.2 percent to 1,722.34 at the close in New York.
The Federal Reserve Bank of Philadelphia’s general economic index jumped to 22.3 this month from 9.3 in August. Readings greater than zero signal growth in the area that covers eastern Pennsylvania, southern New Jersey and Delaware. Measures of orders, sales and employment increased, while a gauge of the six-month outlook was the strongest in a decade.
The report indicates “a significant acceleration in manufacturing activity after the stutters in recent months,” Millan Mulraine, director of U.S. rates research at TD Securities USA Inc. in New York, said in a note to clients. There’s “a meaningful uptick in optimism among this segment of the business community about the outlook for the economic recovery.”
Economists’ estimates of existing-home sales in the Bloomberg survey ranged from 4.95 million to 5.41 million.
The median selling price of an existing home increased 14.7 percent from a year ago to $212,100, today’s report showed. That was the biggest gain since October 2005.
Lawrence Yun, chief economist at the Realtors group, said the surge in sales in August was probably the “last hurrah” for the next year to 18 months as higher prices and the increase in mortgage rates hurts affordability for some buyers.
Activity at lockboxes, which contain the keys that real-estate agents use to show properties to prospective buyers, showed “some significant change in direction” in recent weeks, indicating sales will probably slow, Yun said at a news conference as the data were released.
“Rising mortgage rates hurried some people into making the decision” to close on a deal, he said, which means demand will cool in coming months.
The number of previously owned homes on the market was 2.25 million at the end of August, the fewest for that month since 2002. At the current sales pace, it would take 4.9 months to sell those houses compared with 5 months at the end of July.
Existing-home sales, tabulated when a contract closes, are recovering from a 13-year low of 4.11 million reached in 2008. Annual purchases peaked at a record 7.08 million in 2005.
Fed policy makers yesterday maintained record accommodation as rising borrowing costs showed signs of slowing the expansion. That spurred the biggest rally in Treasuries in almost two years. The drop in bond yields may help hold down mortgage rates, which have jumped more than a percentage point since the end of April.
“The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said in a statement after its two-day meeting. While “downside risks” to the outlook have diminished, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement.”
The rate on 30-year home loans averaged 4.50 percent in the week ended today, close to the highest level since July 2011, according to data from McLean, Virginia-based Freddie Mac. The rate, which had been as low as 3.81 percent at the end of May, has been rising since Fed Chairman Ben S. Bernanke that month indicated the central bank may slow asset purchases.
Higher borrowing costs may explain why households are losing confidence about the future. The Bloomberg Consumer Comfort Index showed views of the economic outlook slumped in September to the weakest level in a year. The gap between positive and negative expectations widened to minus 9, the worst since August 2012, from minus 5 in the prior two months. The weekly confidence measure rose to a one-month high of minus 29.4 from minus 32.1.
The jump in mortgage costs is unlikely to halt the nation’s housing recovery, Red Bank, New Jersey-based Hovnanian Enterprises Inc. (HOV) said. The company reported a profit for its fiscal third quarter as net contracts climbed 1.8 percent and the contract backlog, an indication of future sales, jumped 18 percent to 2,893 homes.
The company is confident any hesitancy from its customers caused by the jump in borrowing costs “will be a temporary bump in the road to housing recovery,” Chief Executive Officer Ara Hovnanian said on a Sept. 9 conference call with analysts.
PulteGroup Inc. (PHM), based in Bloomfield Hills, Michigan, expects the run-up in borrowing costs will vary across consumer segments, James Zeumer, head of investor relations, said on a Sept. 10 teleconference. For first-time buyers, a half-percentage-point rise in interest rates means “there will be some of them that will be out of the game,” he said, while the move-up buyers “have a little bit more flexibility.”
Another report from the Labor Department today showed jobless claims rose less than forecast last week as two states began working through a backlog of applications that were caused by computer-system changeovers.
Applications for unemployment benefits climbed by 15,000 to 309,000 in the week ended Sept. 14 from a revised 294,000 in the prior period, a Labor Department report showed today in Washington. The median forecast of 53 economists surveyed by Bloomberg called for an increase to 330,000. A Labor Department spokesman said it could be a week or two before the state employment agencies are able to catch up on applications.
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