Sales of previously owned U.S. homes slumped in November from a one-year high, underscoring the uneven nature of the current recovery in residential real estate that’s been one of its defining characteristics.
Purchases fell 6.1 percent to a 4.93 million annual rate last month, the weakest reading since May, from a 5.25 million pace in October, figures from the National Association of Realtors showed today in Washington. Demand dropped in all regions of the country, suggesting anomalies such as bad weather were not at play, the group said.
Scant inventory and slow return of first-time buyers after the worst recession in the post-World War II era are working to counteract ultra-low mortgage rates, the agents’ group said. A strengthening labor market will be needed to boost growth in the industry as the Federal Reserve considers raising benchmark interest rates next year.
“The recovery in housing remains slow,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose forecast for a 4.94 million sales pace was among the closest in the Bloomberg survey. “I don’t think it’s really an indication that there’s a fundamental weakening in the housing market.”
Stocks extended their climb, with the Standard & Poor’s 500 Index rising to a record, as gains in technology shares offset losses among drugmakers. The S&P 500 increased 0.4 percent to 2,078.54 at the close in New York.
The median forecast of 73 economists surveyed by Bloomberg projected sales would decline to a 5.2 million rate. Estimates ranged from 4.93 million to 5.3 million. October’s reading was the strongest since September 2013, and was revised from a previously reported 5.26 million.
Purchases increased 2.1 percent in November on an adjusted basis compared with a year earlier, when a temporary jump in mortgage rates hurt demand, today’s report showed.
The number of properties on the market dropped 6.7 percent in November from a month earlier to 2.09 million, the fewest since March. At the current pace, it would take 5.1 months to sell those houses, the same as in October.
The size of the decline in sales last month was “somewhat of a puzzle,” Lawrence Yun, NAR chief economist, said in a news conference today as the figures were released. All the things that typically influence demand are constructive, including a strengthening economy, more hiring, rising consumer confidence, higher stock prices and low mortgage rates, he said.
That probably means the decline could be a “one-month aberration,” said Yun.
The drop in inventory may also mean prospective home buyers just don’t have enough of a selection and are staying away until there is more supply, he said.
One longer-term challenge that the real-estate agents’ group is tracking is the possibility that current owners are suffering from “rate-lock,” meaning they don’t want to risk losing their ultra-low mortgage rates by moving, Yun said. He also said that the stock market’s swoon in early October could have scared some prospective buyers the following month, and that bad weather probably didn’t play a role in the slowdown.
All four regions showed a decrease in sales last month, led by a 9.6 percent drop in the West.
Purchases of single-family homes declined 6.3 percent, and sales of condominiums were down 4.8 percent.
Housing has struggled to accelerate this year even amid low mortgage rates as rising property values and strict lending standards cause some young or lower-income buyers to stay out. First-time buyers accounted for 31 percent of all purchases in November, today’s report showed. While that’s the highest share in two years, it remains short of the 40 percent that the group has said is more typical and means those buyers are coming back only “slowly,” Yun said.
The median price of an existing home increased 5 percent from a year earlier to $205,300 last month, today’s report showed. That exceeded the 1.3 percent increase in consumer prices and the 2.1 percent advance in hourly earnings on average over the same period.
“Unless there is a meaningful pickup in household incomes in 2015, expect continued weakness in sales as the average home buyer is squeezed,” Sophia Kearney-Lederman, an economic analyst at FTN Financial in New York, said in a research note. “The housing market has struggled to find sustained upward momentum this year, even as the broader economy regained strength.”
Commerce Department data last week showed that the pace of U.S. home construction slowed in November, with housing starts declining 1.6 percent to a 1.03 million annualized rate. Building permits also fell, showing construction is also unlikely to surge in the immediate future.
Mortgage rate stability will play an important role in convincing some prospective buyers to take the plunge, especially as Fed officials debate when to raise their benchmark interest rates for the first time since 2006. Conversely, an impending rate rise may encourage some buyers to pre-emptively jump into the market.
The average rate for a 30-year fixed mortgage was 3.80 percent in the week ended Dec. 18, according to Freddie Mac in McLean, Virginia. That’s the lowest level since May 2013, when then-Fed Chair Ben S. Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains.
Homebuilders including PulteGroup Inc. remain optimistic about the industry’s prospects. Confidence among U.S. homebuilders hovered close to a nine-year high this month, according to the National Association of Home Builders/Wells Fargo sentiment gauge.
“Our expectation would be we continue to move towards normal,” Robert O’Shaughnessy, chief financial of Bloomfield Hills, Michigan-based PulteGroup, said at a Dec. 9 meeting with investors. The improvement will come at “a measured pace,” he said, with some regions performing better than others.