Home Sales Rising to Two-Year High Spur U.S. Growth: Economy
Americans bought new homes in September at the fastest pace in two years, another sign the industry whose decline was at the heart of the recession is bouncing back.
Sales climbed 5.7 percent to a 389,000 annual pace, the most since April 2010, following a revised 368,000 rate in August, figures from the Commerce Department showed today in Washington. The median estimate of 75 economists surveyed by Bloomberg called for an increase to 385,000.
Population growth and mortgage rates pushed to record lows by Federal Reserve purchases of housing debt are generating sales for builders like Toll Brothers Inc. (TOL) and spurring the three-year economic recovery. Housing starts in September jumped 15 percent to the fastest pace since July 2008, a report last week showed.
“All the things that were really holding back housing are finally starting to lift,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who projected sales would climb to 390,000. “It really is tough to find any bad signs here. Inventories are very, very lean. Assuming the economy remains on track, housing should continue to improve for the rest of the year and into 2013.”
Stocks fell, erasing earlier gains, after the Fed said employment growth is slow and strains in financial markets continue to pose risks to the economy. The Standard & Poor’s 500 Index dropped 0.3 percent to 1,408.75 at the close in New York. Treasury securities declined, sending the yield on the benchmark 10-year note up to 1.79 percent from 1.76 percent late yesterday.
A preliminary report showed a Chinese purchasing managers’ index climbed this month, boosting confidence that the world’s second-biggest economy is stabilizing. The 49.1 reading for October was up from 47.9 the prior month and just shy of the 50 level that is the dividing line between contraction and growth, according to data from HSBC Holdings Plc and Markit Economics.
The news today wasn’t as positive elsewhere as euro-area services and manufacturing output contracted more than economists forecast in October and German business confidence dropped to the lowest in more than 2 1/2 years as Europe’s recession deepened.
The Bloomberg survey estimates for U.S. new-home sales ranged from 370,000 to 410,000. The August reading was previously reported as a 373,000 annual rate.
A government tax credit helped boost sales in April 2010, the last time they were this strong.
Fed policy makers today said the economy is still growing modestly and unemployment remains elevated as they maintained $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.
“Growth in employment has been slow,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. “Household spending has advanced a bit more quickly.”
Demand for new houses was up 27.1 percent from a year ago, today’s report showed. The median price for a new house climbed 11.7 percent in September from the same month last year to $242,400.
Purchases increased in three of four regions last month, led by a 16.8 percent gain in the South and a 16.7 percent increase in the Northeast. Sales in the Midwest dropped 37.3 percent, the biggest decrease since January 1994.
A jump in housing starts in September was the latest sign the new-home industry is showing signs of vitality. Beginning construction rose last month to an 872,000 annual rate, the fastest pace since July 2008 and exceeding all forecasts in a Bloomberg survey, Commerce Department figures showed Oct. 17.
Supporting future construction, the supply of homes at the current sales rate dropped to 4.5 months, the lowest since October 2005, from 4.7 months in August, today’s report showed. There were 145,000 new houses on the market at the end of September.
Residential construction hasn’t contributed to economic growth over the course of an entire year since 2005, when it accounted for 0.4 percentage point of the 3.1 percent increase in gross domestic product. From 2006 through 2009, the homebuilding slump subtracted 0.8 percent point from growth on average. The declines diminished over the past two years.
Home building contributed 0.3 percentage point to growth on average in the first half of 2012.
The building environment has made construction companies less pessimistic. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006 and the sixth-straight gain, figures showed yesterday. Still, readings below 50 mean more respondents said conditions were poor.
Horsham, Pennsylvania-based Toll Brothers, the largest U.S. luxury-home builder, reported a 57 percent increase in orders for the quarter ending in July over the previous year.
“We continue to see some early but consistent signs of housing recovery, which makes us increasingly optimistic about a more structural demand recovery,” Marc Bitzer, president of Whirlpool North America, said during an Oct. 23 earnings call. Shares of Benton Harbor, Michigan-based Whirlpool Corp., the world’s largest appliance maker, today reached the highest level in more than two years after the company lifted its 2012 earnings forecast.
The existing homes market is also improving. Figures from the National Association of Realtors last week showed previously owned homes sold at a 4.75 million rate in September and a 4.83 million rate in August, the strongest back-to-back pace since mid-2010.
Sales of new homes are considered a timelier barometer than purchases of previously owned dwellings, which are calculated when a contract closes. Newly constructed houses accounted for 6.7 percent of the residential market in 2011, down from a high of 15 percent during the boom of the past decade.
Cheap borrowing costs are underpinning a recovery. The average 30-year fixed rate mortgage was 3.37 percent in the week ended Oct. 18, near a record-low of 3.36 reported Oct. 4, according to data from Freddie Mac that dates back to 1971.
Another boon for housing, the number of households in the U.S. grew 2 percent in 2011, the biggest gain in 10 years, to 119.9 million, according to the most recent Census Bureau data.
To contact the reporter on this story: Alex Kowalski in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Christopher Wellisz at email@example.com