Sales of previously owned U.S. homes jumped in July to the second-highest level in more than six years as buyers rushed to lock in mortgage rates before they increased any more.
Purchases advanced 6.5 percent to a 5.39 million annual rate last month, beating the 5.15 million median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington. Sales were the strongest since a government tax credit temporarily boosted demand in November 2009, and second-highest since March 2007.
The data reflect closings of contracts signed a month or two earlier, when mortgage rates were just beginning to edge up from record lows, persuading buyers to complete transactions as borrowing costs subsequently shot up. Gains in employment and wages will probably give households the means and confidence to sustain demand throughout 2013.
“Housing will be an important part of the recovery through the rest of this year and into 2014,” said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh. PNC is the most accurate forecaster of existing-home sales over the past two years, according to data compiled by Bloomberg. “We have a better labor market and improved confidence, so the underlying demand is there.”
Stocks fell after minutes from the Federal Reserve’s July policy meeting showed support for Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves. The S&P 500 declined 0.6 percent to 1,642.8, the lowest since July 8, at the close in New York. The S&P Supercomposite Homebuilding Index retreated 0.6 percent to 412.21.
“Almost all participants confirmed that they were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released today in Washington.
The FOMC will probably reduce its $85 billion in monthly purchases at its Sept. 17-18 meeting, according to 65 percent of 48 economists in an Aug. 9-13 Bloomberg survey. The median estimate called for a cut to $75 billion each month.
Estimates for the pace of existing-home sales last month in the Bloomberg survey of 76 economists ranged from 4.95 million to 5.5 million. The NAR revised the June reading down to a 5.06 million annualized rate from a previously reported 5.08 million.
The 6.5 percent jump in demand last month from June would be the biggest since January 2002, excluding the periods in 2009 and 2010 that were influence by the government homebuyer tax credit and its extension.
Compared with a year earlier, purchases increased 17.2 percent in July on an adjusted basis, today’s report showed.
The surge in demand also boosted property values as the median price increased 13.7 percent in July from a year earlier, the most since October 2005. It climbed to $213,500 last month from $187,800 in July 2012.
While the number of homes on the market is growing, it’s still low, which also contributed to the increase in prices, Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released.
There were 2.28 million homes for sales in July, up from 2.16 million a month earlier, according to the report. At the current sales pace, it would take 5.1 months to sell those houses, the same as in June. The inventory was down from 2.4 million a year earlier, and the lowest for any July since 2002.
Higher borrowing costs encouraged more Americans to lock in rates before they headed higher. The average rate for a 30-year fixed mortgage climbed to 4.4 percent in the week ended Aug. 15 from a record low of 3.31 percent in November, according to Freddie Mac.
“The increases in rates panicked some buyers,” Yun said in the press conference. Higher borrowing costs “generally provide a sense of urgency to close” on home purchases.
Yun said that bigger increases in rates will “reduce the pool of eligible homebuyers” and the average 30-year mortgage may reach 5 percent by year-end.
That will probably mean sales may not improve much more from July’s pace, said Thomas Lawler, president of Lawler Economic & Housing Consulting LLC in Leesburg, Virginia.
“It’s not unusual, when you see a spike in mortgage rates, to see a couple months later a spike in closed sales,” said Lawler, a former senior vice president at Fannie Mae in Washington. “People saw the beginning of the trend and accelerated their pattern of buying. In all likelihood, within a month or two, you’re likely to see the pace of sales slow.”
Existing-home purchases are recovering from a 13-year low of 4.11 million reached in 2008. Annual sales peaked at 7.08 million three years earlier. A total of 4.66 million previously owned houses were sold in 2012.
The Realtors group projects 5.05 million home sales this year, and Yun said that figure may soon be revised higher.
Sales climbed in all four U.S. regions, with the biggest gain in the Northeast.
Supply constraints, rising home prices and an improved labor market have benefited homebuilders, whose confidence climbed this month to the highest level since November 2005. A Commerce Department report last week showed housing starts advanced in July, paced by a rebound in construction of multifamily projects. Building permits also rose, signaling construction will keep rising.
Higher borrowing costs may be seeping into consumer confidence. A preliminary sentiment index from Thomson Reuters/University of Michigan fell in August to 80 from a six-year high of 85.1 a month earlier.
The index on home-buying conditions dropped this month to the lowest level since February, Daniel Silver at JPMorgan Chase & Co. in New York, who had access to the data, said in an Aug. 16 research note.
Investors in July accounted for 16 percent of all existing-home sales, down from a peak of 22 percent in February, according to Yun.
The pickup in borrowing costs may start to work to the advantage of some home-buyers, who have been competing with investors during the housing rebound, Spencer Rascoff, chief executive officer of Zillow Inc., said on an Aug. 6 conference call. Zillow, the operator of the largest U.S. real-estate website, reported sales jumped 69 percent in the second quarter from a year earlier, topping the average estimate of nine analysts.