Sales of previously owned U.S. homes rose more than anticipated in August as investors scooped up distressed properties with cash.
The 7.7 percent increase left purchases at a five-month high 5.03 million annual rate, the National Association of Realtors said today in Washington. The August pace compares with a peak of 7.08 million in 2005, before the housing boom turned into a subprime-mortgage bust that dragged the economy into an 18-month recession.
“Housing’s been down for so long, we should take whatever good news we can get,” said Brian Jones, an economist at Societe Generale in New York, whose forecast was among the highest in the Bloomberg survey. “Interest rates are low and pricing is attractive and people are responding.”
While foreclosure-driven price declines and record-low mortgage rates are preventing a renewed slump in sales, companies like Lennar Corp. say weaker confidence and limited access to financing are limiting demand. The Federal Reserve today employed another round of unconventional monetary policy aimed at preventing the economy from relapsing into recession.
The median forecast of economists surveyed by Bloomberg News called for a 4.75 million rate. Forecasts in the survey of 74 economists ranged from 4.5 million to 4.99 million.
The Fed said it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less. The action is intended to “put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Fed said in a statement after its two-day meeting. Policy makers will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries.
“There are significant downside risks to the economic outlook, including strains in global financial markets,” the Fed statement said.
Stocks tumbled, sending the Standard & Poor’s 500 Index down for a third day. The S&P 500 dropped 1.3 percent to 1,185.97 at 2:41 p.m. in New York. Treasuries rose, pushing down the yield on the benchmark 10-year note to 1.87 percent from 1.94 percent late yesterday.
The median price of a previously owned home dropped 5.1 percent to $168,300 from $177,300 in August 2010, today’s report showed.
Existing-home sales, tabulated when a contract closes, rose 19 percent from the same month last year.
The number of previously owned homes on the market declined 3 percent to 3.58 million. At the current sales pace, it would take 8.5 months to sell those houses, down from 9.5 months at the end of the prior month.
Month’s supply in the seven months to eight months range is consistent with stable home prices, the group said.
Of all purchases, cash transactions accounted for about 29 percent, the same as in July, Jed Smith, managing director of research at the NAR, said in a news conference today as the figures were released.
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 31 percent of the total in August, up from 29 percent in the prior month.
“Investors were more active in absorbing foreclosed properties,” Lawrence Yun, the group’s chief economist, said in a statement. Investors accounted for 22 percent of purchases in August, up from 18 percent the previous month.
Contract cancelations were reported by 18 percent of the group’s members in August, up from 16 percent a month earlier. The cancelations reflected mortgage applications that were refused or because appraised home values were coming in below the sales price, the group said.
Sales of existing single-family homes increased 8.5 percent to an annual rate of 4.47 million, the highest since January. Purchases of multifamily properties, including condominiums and townhouses, rose 1.8 percent to a 560,000 pace.
Purchases climbed in all four regions, led by an 18 percent jump in the West. Demand increased 5.4 percent in the South, 3.8 percent in the Midwest and 2.7 percent in the Northeast.
The residential real estate industry, which helped trigger the recession, is struggling more than two years into the economic recovery that began in June 2009. Housing starts in August dropped 5 percent to a 571,000 annual rate, the slowest in three months, Commerce Department figures showed yesterday.
Miami-based Lennar, the third-largest U.S. homebuilder by revenue, reported a 31 percent drop in profit in the quarter ended Aug. 31 as sales fell. The housing market remains “challenging,” with “already skittish customers” being driven away by burdensome mortgage-qualification rules, Chief Executive Officer Stuart Miller said on a conference call.
At the same time, home prices that have decreased to attractive levels and interest rates on 30-year loans at record lows are reviving interest among potential buyers, he said.
“Demand remained constrained however by the availability of financing and general consumer confidence,” Miller said on the Sept. 19 conference call. There’s also “evidence that the consumer is beginning to return in earnest to the homebuilding market.”
Most builders remain pessimistic. The National Association of Home Builders/Wells Fargo sentiment index dropped to 14 in September, a three-month low, from 15 in August, the Washington-based group reported this week. Readings less than 50 mean more respondents said conditions were poor. Gauges of prospective buyer traffic, current sales and purchase expectations declined.