Home Sales Rising to Three-Year High Propel U.S. Growth
Americans bought existing homes at the fastest pace in three years in February as borrowing costs near record lows spurred a housing revival that’s forecast to boost economic growth this year.
Purchases increased 0.8 percent to a 4.98 million annualized rate, the most since November 2009, the National Association of Realtors said today in Washington. Other figures showed applications for jobless benefits over the past month fell to the lowest level since February 2008, while consumers’ views of the economic outlook brightened in March.
More housing demand combined with limited supply is pushing up property values, leading to gains in household confidence and wealth that are helping propel consumer spending. The figures corroborate the Federal Reserve’s view that labor conditions are on the mend and residential real estate is picking up along with the broader economy.
“The fundamentals that usually drive housing activity, such as job growth and interest rates, those are favorable, and they suggest that we should continue to advance,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who correctly forecast the February pace. Still, “the inventories are said to be tight in many markets, and that’s holding sales back to a degree.”
Stocks fell, after the Standard & Poor’s 500 Index approached a record high yesterday, as concern about Europe’s debt crisis overshadowed the better-than-projected economic data. The S&P 500 dropped 0.8 percent to 1,545.8 at the close in New York. The benchmark index climbed yesterday to within seven points of its all-time high reached in 2007.
Euro-area services and manufacturing output contracted more than economists estimated in March, adding to signs the currency bloc’s economy is struggling to emerge from a recession. A composite index based on a survey of purchasing managers in both industries fell to 46.5 from 47.9 in February, London-based Markit Economics said. Economists forecast a reading of 48.2, according to the Bloomberg survey median. A reading below 50 indicates contraction.
While Europe’s economy struggles, a report from the Conference Board in New York indicated the U.S. is strengthening. The index of leading economic indicators in February rose 0.5 percent, more than forecast, for the second straight month. The Bloomberg survey median called for a 0.4 percent gain.
Consumers’ views of the outlook improved in March to the highest level this year, according to results today of the Bloomberg Consumer Comfort Index. The gap between positive and negative expectations narrowed to minus 4 from minus 7. The weekly gauge fell for the first time in seven weeks.
“Americans are growing more confident about their own financial and economic situations,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “A quicker pace of employment growth, a modest wealth effect, and what looks to be a decline in gasoline prices has likely bolstered future expectations on the economy.”
Fed policy makers yesterday said in a statement that “the housing sector has strengthened further,” after deciding to continue buying securities at a pace of $85 billion a month to spur growth and further reduce joblessness.
At the same time, economic data since their last meeting in January suggest “a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated,” the Fed said.
Initial jobless claims rose by 2,000 last week, less than forecast, to 336,000, the Labor Department said today. The less- volatile four-week average dropped to a five-year low of 339,750 from 347,250.
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The median forecast of 77 economists surveyed by Bloomberg for existing-home sales called for an increase to a 5 million pace. Estimates ranged from 4.85 million to 5.15 million.
The median price of an existing home increased to $173,600 last month, up 11.6 percent from February 2012, today’s report showed. That was the biggest 12-month gain since November 2005.
Gains in home prices added $1.4 trillion to household wealth in 2012, and further appreciation this year will boost net worth by as much as $1.7 trillion, according to forecasts by Lawrence Yun, NAR’s chief economist. The increase will lift consumer spending by anywhere from $70 billion to $110 billion in 2013, he predicted.
While cuts in government spending will slow the economy in the short run, the pickup in consumer demand propelled by the rebound in housing will help offset some of the damage over the longer term, Yun said. Home-price increases “will soften the blow related to sequestration issues,” he said.
The number of previously owned homes on the market climbed to 1.94 million from 1.77 million in January. It was the first gain in supply in almost a year.
At the current sales pace, it would take 4.7 months to sell those houses compared with 4.3 months at the end of January. A supply in this range will typically yield price increases in the “low single-digit” range, Yun said in a news conference as the figures were released.
Resales, tabulated when a contract closes, accounted for about 93 percent of the residential market in 2012, when a total of 4.66 million previously owned houses were sold. That was the most since 2007 and up 9.4 percent from 2011.
The strength in demand has bolstered sales of new properties as well. Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, said orders rose in the fiscal first quarter.
“Current market conditions are driven by strong demand resulting from low interest rates and attractive home prices, which have led to very affordable monthly payments, compared to increasing rental rates,” Chief Executive Officer Stuart Miller said in a statement yesterday. New orders, deliveries and backlog have “shown strong increases,” he said.
Increasing property values are helping the market heal. Home prices rose 6.5 percent in the year ended in January, the biggest 12-month gain since 2006, according to data today from the Federal Housing Finance Agency.
Near record-low borrowing costs are helping keep properties affordable. The average rate on a 30-year, fixed-rate purchase loan was 3.54 percent this week, compared with 4.08 percent a year ago, according to McLean, Virginia-based Freddie Mac. The 30-year rate reached a record-low 3.31 percent in November.
While Fed policy is helping spur demand, limited access to credit may be holding the market back.
“One of the most powerful tools we have is bringing down mortgage rates and stimulating home-buying, construction, and related industries,” Fed Chairman Ben S. Bernanke said yesterday in a press conference. Financial institutions may have “gone too far” in setting requirements to obtain financing amid concerns about new regulations, he said. Banks “may have tightened the mortgage credit box more than would be desirable in a long-run, healthy economy,” Bernanke said.
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