Sales of previously owned U.S. homes unexpectedly climbed in October, showing record-low mortgage rates are helping spur the world’s largest economy.
Purchases of existing houses increased 2.1 percent to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington. Property values rose over the past 12 months by the most in seven years as inventories dropped to the lowest level in almost a decade.
Gains in home prices are boosting consumer finances and sentiment, which in turn are underpinning the household spending that accounts for about 70 percent of the economy. Companies such as Lowe’s Cos. are among those saying the outlook is improving as the market recovers from its worst slump since the Great Depression and foreclosures are whittled down.
“Housing’s cheap, borrowing is cheap and, if you can get credit, it’s a great time to buy,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, who projected a 4.8 million annual rate for October sales. “We’re fighting our way through distressed-property sales.”
Another report today showed homebuilder confidence climbed in November to a six-year high, propelled by the biggest jump in sales in a decade. The National Association of Home Builders/Wells Fargo sentiment gauge increased to 46, the highest level since May 2006, from 41 in October, according to the Washington-based group.
Stocks rose, with the Standard & Poor’s 500 Index notching its biggest advance in two months, amid the better-than-projected data ad growing optimism that President Barack Obama will reach a compromise with Congress that will avert the fiscal cliff of tax increases and budget cuts slated to take effect next year. The 500 Index climbed 2 percent to 1,386.89 the close in New York. The S&P Supercomposite Homebuilder Index increased 0.9 percent.
A housing turnaround is also taking place in other parts of the globe. Home sellers in London increased asking prices in November for a third month as the city’s wealthiest areas continued to lure overseas buyers, Rightmove Plc said today. Prices in the U.K. capital increased 1.2 percent to an average 483,709 pounds ($769,600), the operator of Britain’s biggest property website said.
The median forecast of 77 economists surveyed by Bloomberg called for a 4.74 million rate of U.S. existing-home sales. Estimates ranged from 4.5 million to 5.05 million. September’s pace was revised to 4.69 million from a previously reported 4.75 million.
The median price of an existing home climbed 11.1 percent to $178,600 from October 2011, today’s report showed. The increase was the biggest year-over-year gain since November 2005 and reflected a pickup in demand for more expensive properties, the group said.
“Housing prices have bottomed now on a national basis, and in some markets you are seeing some good appreciation,” Robert Niblock, chief executive officer of Lowe’s, the second-largest U.S. home-improvement retailer, said in a telephone interview today from the company’s headquarters in Mooresville, North Carolina. “People are going to feel better about spending on their homes believing that in the future they’re going to be worth the same or more than what they are today.”
Lowe’s today reported fiscal third-quarter profit that topped analysts’ estimates, sending shares up by the most in more than three years.
The number of previously owned homes on the market decreased 1.4 percent to 2.14 million, the fewest since December 2002. At the current sales pace, it would take 5.4 months to sell those houses, the least since February 2006, and down from 5.6 months at the end of September.
Sales of existing single-family homes increased 1.9 percent to an annual rate of 4.22 million. Purchases of multifamily properties -- including condominiums -- rose to a 570,000 pace, the most since January 2011, from 550,000.
Purchases climbed in three of the four regions, reflecting a 4.4 percent increase in the West, a 2.1 percent gain in the South and a 1.8 percent rise in the Midwest. Demand fell 1.7 percent in the Northeast as superstorm Sandy disrupted the market, the agents’ group said.
“We anticipate more impact to be showing up in November and December,” Lawrence Yun, NAR chief economist, said in a news conference as the figures were released.
Existing-home sales have improved from a low of a 3.39 million annual rate in July 2010, climbing to a two-year high 4.83 million pace in August. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.
Home prices are recovering as distressed property makes up a smaller share of the market and purchases shift toward short sales rather than foreclosures, which are more deeply discounted, according to economists at Morgan Stanley. Distressed properties made up 24 percent of the market last month, down from 28 percent a year earlier.
Short sales, in which a lender agrees to a transaction for less than the balance of the mortgage, accounted for 12 percent of the market last month, the same as foreclosures. The latter made up about 17 percent of the market a year ago, Ted Wieseman, a Morgan Stanley economist in New York, said in a research note.
Cheaper borrowing costs will probably continue to fuel demand for those able to get financing. The average rate on a 30-year, fixed mortgage declined to 3.34 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.
The drop in financing costs indicates efforts by Federal Reserve policy makers are paying off. The central bank is pressing ahead with record easing, including a plan to buy $40 billion a month of mortgage-backed securities, intending to spur growth and reduce a 7.9 percent unemployment rate.
“Continued weakness in housing -- reflected in falling prices, low rates of new construction, and historic levels of foreclosure -- has proved a powerful headwind to recovery,” Fed Chairman Ben S. Bernanke said last week. “It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country.”
He has resorted to unorthodox policies six years after home prices started a plunge that knocked the economy into the longest recession since the 1930s.
Strict lending rules remain an obstacle to an even stronger rebound in residential real estate, Bernanke said.
While tighter credit standards after a collapse in the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery,” Bernanke said.