Previously owned home sales fell unexpectedly in June as tight supply and increasing rates for mortgages imperiled the real-estate market recovery in the U.S.
Purchases fell 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. Demand was the second-strongest since November 2009 following May’s downwardly revised 5.14 million rate.
First-time buyers are having difficulty finding properties for less than $100,000 as a lack of inventory pushes up property values, and higher mortgage rates are also starting to cool demand for more expensive houses in the West and Northeast, the real-estate agents group said. Federal Reserve Chairman Ben S. Bernanke last week said housing was one of the bright spots for growth and added policy makers will monitor the recent jump in borrowing costs to ensure it won’t derail the nascent recovery.
“Demand is still fairly strong, but this is where the inventory constraints come into play,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who predicted sales would decline to a 4.99 million pace. “Inventories still remain fairly tight, particularly on the low end of the price scale.”
The Standard & Poor’s 500 Index climbed 0.2 percent to 1,695.53 at the close in New York as investors analyzed corporate earnings and home sales to gauge the prospects for continued central bank stimulus. The S&P Supercomposite Homebuilding Index dropped 1.8 percent.
Estimates in the Bloomberg survey of economists ranged from 4.99 million to 5.5 million. The prior month’s pace was revised from a previously reported 5.18 million.
Sales climbed 8.2 percent from June 2012 before adjusting for seasonal variations, today’s report showed.
The median price of an existing home climbed 13.5 percent to $214,200 last month from $188,800 a year earlier.
The number of properties on the market increased 1.9 percent to 2.19 million, the fewest for any June since 2001. These data aren’t adjusted for seasonal changes, so it’s important to compare figures for the same month each year.
“There’s going to be a few bumps in the road, but overall we expect the housing market to look pretty decent,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who projected sales would slow to a 5.05 million pace.
About 47 percent of Realtors surveyed in June said they had potential sellers who were waiting for prices to increase further before putting their houses on the market, according to the NAR’s report.
Due to increasing prices, the shortage was particularly acute for homes valued at less than $100,000, making it difficult for first-time buyers to find affordable properties, NAR chief economist Lawrence Yun said at a news conference as the figures were released.
First-time buyers accounted for 29 percent of sales last month, down from the more typical 40 percent to 45 percent, according to the agents’ group. Sales of homes priced at less than $100,000 made up 14.7 percent of the market in June, down from 24.1 percent as recently as February, the NAR said.
In addition, the increase in borrowing costs is starting to cool demand in higher-priced regions such as California, New York City and Boston, Yun said. Preliminary data for pending home sales in those areas is showing a slackening in demand, he said.
Speculation that the Fed is getting closer to paring its bond buying has caused mortgage rates to increase. The average rate on a 30-year fixed loan was at 4.37 percent in the third week of July, up from a record low of 3.31 percent in November, according to data from Freddie Mac.
Bernanke last week said the improved housing market, along with rising car sales, is driving the recovery, bolstered by low mortgage rates and household formation.
“The housing sector is certainly an important component of the recovery,” Bernanke said July 17 while testifying before the House Financial Services Committee. “Housing prices going up are not only beneficial in terms of stimulating more construction,” but also improve household balance sheets and encourage consumer spending, he said.
The Fed chairman tried to reassure markets that the central bank is monitoring the recent jump in borrowing costs.
“We will be watching to see if the movement in mortgage rates has any material effect on housing,” Bernanke said in response to questions. “If we think that mortgage-rate increases are threatening that progress, then we would have to take additional action in the monetary sphere to try to address that.”
Existing-home sales are recovering after reaching a 13-year low of 4.11 million in 2008. The market peaked at a record 7.08 million in 2005. Resales accounted for about 93 percent of the residential market in 2012.
The strengthening housing market has bolstered household wealth and suggests the economic expansion will hold.
“While commercial loan demand is still modest, jobs are being created, consumer confidence is increasing and the housing market continues to demonstrate strong momentum,” said John G. Stumpf, chairman and chief executive officer of San Francisco-based Wells Fargo & Co., in a July 12 earnings call. Second-quarter strength in the housing market has improved the company’s results “in a number of ways, including higher originations for home purchases, lower environmental costs, reduced repurchased reserves and improved credit quality.”
Accelerated demand for new homes amid a tight supply has strengthened revenue for U.S. homebuilders. Los Angeles-based KB Home, the best-performing U.S. homebuilder stock this year, said it expects to have “meaningful profits” in the second half as revenue and home prices continue to rise.
“With the limited supply of homes available for sale and robust demand in many of our served markets, we have deliberately emphasized price and value creation over sales pace,” said Jeffrey Mezger, president and chief executive officer, in a June 27 statement. The uptick in borrowing costs has created a sense of urgency among buyers, at least from what he’s heard anecdotally, Mezger said in a conference call with analysts.