A decrease in investor purchases prompted an unexpected decline in sales of U.S. existing homes in August, indicating the housing rebound is not yet self-sustaining.
Purchases of previously owned houses dropped 1.8 percent to a 5.05 million annual pace from a 5.14 million rate in July, the National Association of Realtors reported today in Washington. The share of properties sold to investors was the lowest in almost five years, the group said.
Transactions at the lower end of the market are suffering as the potential for higher interest rates makes housing a less attractive investment. First-time buyers have yet to fill the void amid slow wage gains and tight credit conditions.
The drop “adds to some of the trepidation” about a slowdown in housing, said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected sales would fall. “As we start to see overall improvement in employment,” particularly for younger Americans, “we’ll start to see that first-time homebuyer activity increase.”
Stocks declined, led by a plunge among small companies, as China’s finance minister damped hopes the world’s second-biggest economy would get additional stimulus. The Standard & Poor’s 500 Index fell 0.8 percent to 1,994.29 at the close in New York.
The median forecast of 72 economists in a Bloomberg survey called for sales of existing homes to rise to a 5.2 million rate. Estimates ranged from 5 million to 5.35 million. The July figure was revised from a previously reported 5.15 million.
All-cash purchases fell to about 23 percent of the market from the usual 33 percent, NAR Chief Economist Lawrence Yun said at a news conference as the figures were released. Investors accounted for 12 percent, the least since late 2009, he said.
The drop in sales last month is “primarily attributable to investors stepping out of the market,” he said.
Demand for homes priced at $100,000 or less slumped 15.9 percent last month, reflecting a lack of inventory of distressed properties, said Yun. Those transactions, which include foreclosures and short sales where a seller accepts a price lower than the underlying mortgage, accounted for 8 percent of the market in August, the least since records began in October 2008, according to real-estate agents’ group.
The drop in investor activity could be a one-month fluke or may also represent growing concern that Federal Reserve policy makers will soon boost interest rates, Yun said. Higher interest rates make investing in real estate less attractive compared with other assets, he said.
As investors exit, those making their initial foray into real estate have yet to come in. First-time buyers accounted for 29 percent of the market last month, short of the more typical 40 percent. As employment improves, wages pick up and lending rules ease, these buyers will enter, Yun predicted.
“As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand,” he said in a statement.
Andrew and Claire Witko are among those taking the plunge into home buying for the first time as they grow secure in their jobs. They say they’re confident that the neighborhood in Washington. D.C., where they have chosen to live, Eckington, will continue to post home-price gains.
The couple married earlier this year, and if all goes well, they hope to close in mid-October on a three-bedroom condominium with a big kitchen and lots of light.
“Even though there is student-loan debt, the fact that we’re secure in our employment” gave them the confidence to take on housing debt, said Andrew, 29. “The idea of continuing to pay a couple thousand dollars in rent without getting any equity on it was not appealing.”
The median price of an existing home rose 4.8 percent to $219,800 in August from $209,700 a year earlier, today’s NAR report showed.
Purchases dropped in two of four regions, led by a 5.1 percent decrease in the West, today’s report showed.
Existing home sales, which are tabulated when a purchase contract closes, have rebounded from a 13-year low of 4.11 million in 2008. They reached a record 7.08 million in 2005.
The housing recovery has been inconsistent this year after harsh winter weather slowed progress in the first quarter. Data for this quarter has see-sawed.
A gauge of homebuilder confidence rose last month to the highest level since 2005. Meanwhile, beginning home construction slumped 14.4 percent, the most since April 2013, following a pace in July that was the strongest since November 2007, the Commerce Department said last week.
Cheaper borrowing costs could help buyers enter the market. The average 30-year, fixed-rate mortgage was 4.23 percent in the week ended Sept. 18, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.
Mortgage rates have held low as the Fed keeps the main interest rate near zero. At their meeting last week, members of the central bank’s policy making Federal Open Market Committee chose to stay the course, reducing their pace of bond purchases while maintaining that the main interest rate will remain low for a “considerable time” after the program ends.
Homebuilders benefiting amid the low-rate environment include Miami-based Lennar Corp.
“The market has continued a slow and steady recovery that is markedly different from past down-cycle recoveries,” Chief Executive Officer Stuart Miller said in a Sept. 17 earnings call. “History would suggest a more vertical recovery, especially given the severity of the economic decline. This recovery has been a decidedly different experience as the slope of recovery has been shallow and the expected acceleration has not materialized.”