Existing Home Sales Decline as U.S. Supply Dwindles: Economy

Sales of U.S. existing homes unexpectedly fell in December as supply shrank, underscoring the hurdles for an industry seeking to strengthen its recovery even as it completed its best year since 2007.

Purchases fell 1 percent to a 4.94 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The reading was still the second-highest since November 2009. The median forecast of 79 economists surveyed by Bloomberg called for a gain to a 5.1 million rate.

“We saw housing gain momentum throughout last year, and clearly a little dip doesn’t take that away,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, who projected a drop to a 4.95 million annual rate. “For the first time in a while, it looks like it’s a sellers’ market as much as it’s a buyers’ market. I suspect prices and sales will go up again in 2013.”

The usual drop in supply at this time of year and a pickup in demand spurred by historically low mortgage rates, a firming job market and growing households risk keeping inventories lean, pushing prices even higher. The median price of an existing house climbed 6.3 percent in 2012, the most since 2005.

Stocks climbed to five-year highs on better-than-forecast earnings from companies including Travelers Cos. and Freeport-McMoRan Copper & Gold Inc. The Standard & Poor’s 500 Index rose 0.4 percent to 1,492.56 at the close in New York.

Regional Manufacturing

Another report today from Federal Reserve Bank of Richmond showed its manufacturing index fell to minus 12, the lowest level since July, from 5 in December. Readings less than zero signal contraction.

Elsewhere today, German investor confidence increased in January to the highest in 2 1/2 years, adding to signs that Europe’s largest economy may gather momentum, according to data from the ZEW Center for European Economic Research in Mannheim.

In Asia, the Bank of Japan made its strongest commitment yet to end two decades of stagnation, shifting to Federal Reserve-style open-ended asset purchases even as it disappointed investors by delaying the program until next year.

The real-estate agents’ report in the U.S. showed a total of 4.65 million homes were sold last year, up 9.2 percent from 4.26 million in 2011 and the most since 2007. The annual advance was the biggest since 2004.

The market peaked at a record 7.08 million in 2005, and then slumped to reach a 13-year low of 4.11 million in 2008.

Higher Prices

The median price of an existing home rose to $176,600 last year, up 6.3 percent from 2011. It was the biggest year-over-year gain since a 12.1 percent jump in 2005.

December existing home-sales estimates in the Bloomberg survey ranged from 4.89 million to 5.25 million. The prior month’s pace was revised to 4.99 million from a previously reported 5.04 million.

The number of previously owned homes on the market dropped to 1.82 million, the fewest since January 2001, according to today’s report. Supply usually declines during the winter months and picks up again into the middle of the next year before the start of the new school term, the agents’ group has said.

Should families decide to hold off selling this year until the recovery gains further momentum, the resulting lack of supply will disrupt the market, Lawrence Yun, NAR chief economist, said in a news conference today as the figures were released.

“The only concern going into 2013 is the inventory situation,” Yun said. “Price increases are almost guaranteed going into 2013,” he said, adding that the group’s projection of a 4 percent to 5 percent increase this year may be exceeded if supply remains tight.

Less Inventory

At the current sales pace, it would take 4.4 months to sell all houses currently on the market, the lowest since May 2005, compared with 4.8 months at the end of November.

Sales of existing single-family homes decreased 1.4 percent in December to an annual rate of 4.35 million. Purchases of condominiums and cooperatives climbed 1.7 percent to a 590,000 pace, the most since November 2009.

Demand fell in two of four regions last month, led by a 5.9 percent drop in the Midwest. Purchases decreased 3 percent in the South, and rose 5.1 percent in the West and 3.2 percent in the Northeast.

Record-low borrowing costs underpinned housing gains last year. The average rate on a 30-year, fixed mortgage was 3.38 percent last week, hovering near the 3.31 percent reached a month earlier that was the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.

2013 Outlook

The market will probably continue to make progress in 2013. Sales of existing homes will rise about 7.2 percent to 4.98 million this year, the highest since 2007, according to the median estimate of economists and housing analysts surveyed by Bloomberg. Prices will gain 3.3 percent after an estimated 4.5 percent jump in 2012, according to the forecasters.

“After seven years of navigating an unprecedented market downturn, we finally saw stabilization and recovery in 2012,” Stuart Miller, chief executive officer of Lennar Corp., the largest U.S. homebuilder by market value, said during a Jan. 15 earnings call.

“While there have been and still are economic and political uncertainties ahead, we feel that this housing recovery is fundamentally based and driven by a long-term demographic need for housing,” Miller said. “2012, therefore, we believe is just the beginning of the recovery.”

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