Sales of Existing U.S. Homes Rise More Than ForecastJeanna Smialek and Lorraine Woellert
Sales of previously owned homes in the U.S. climbed in May to the highest level in more than three years and manufacturing improved in June, bearing out the Federal Reserve’s view that risks to the expansion are abating.
Purchases of existing houses rose 4.2 percent to a 5.18 million annualized rate, the most since November 2009, the National Association of Realtors reported today in Washington. The Federal Reserve Bank of Philadelphia also said its factory index climbed this month to the highest since April 2011, exceeding all forecasts in a Bloomberg survey.
Growing demand and a lack of supply propelled the median home price up last month by the most in more than seven years, which will probably lead to further gains in household spending and confidence. Stocks tumbled as an improving economy makes it more likely Fed policy makers will start to reduce the amount of money pumped into financial markets later this year.
“Residential construction and home sales will be growing over the next couple of years and that ought to be broadly supportive of the economy,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a unit of the largest U.S. mortgage lender. The Philadelphia report is a “sign of life in the factory sector.”
The Standard & Poor’s 500 Index sank 2.5 percent to 1,588.19 at the close in New York, its biggest one-day loss since November 2011. Each of the 10 groups in the S&P 500 declined at least 2 percent, led by consumer and utility shares.
Slowing global growth also contributed to the drop in equities. Manufacturing in China shrank at a faster pace this month, threatening to stem an economic recovery in the euro area from the currency bloc’s longest-ever recession, according to other reports today.
Factories in the U.S. are showing some resilience in the face of cooling markets overseas. The Federal Reserve Bank of Philadelphia’s general economic index climbed to 12.5 from minus 5.2 in May. Readings greater than zero signal expansion in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.
The index readings were stronger than a similar report this week from the New York Fed that also showed an improvement. All of the Philadelphia gauge’s sub measures, including orders and sales, jumped this month. The New York Fed’s headline reading climbed, signaling growing confidence, even as orders and sales deteriorated.
Consumers are also gaining confidence, which rose last week from a two-month low as Americans’ views on the economy were the least pessimistic in five years, another report showed. The Bloomberg Consumer Comfort Index increased to minus 29.4 in the period ended June 16 from minus 31.3 a week earlier. The measure of how households view the current state of the economy climbed to minus 51.2, the highest since January 2008, from minus 52.5.
Stronger job gains may be needed to prevent sentiment from backsliding. More Americans than forecast filed applications for unemployment benefits last week, showing progress on reducing joblessness remains uneven.
Jobless claims climbed by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported. The median forecast of 46 economists surveyed by Bloomberg called for 340,000.
The index of leading indicators rose less than projected in May, a sign the world’s largest economy may take time to accelerate. The Conference Board’s gauge of the outlook for the next three to six months increased 0.1 percent after a revised 0.8 percent gain in April that was higher than initially reported, the New York-based group said. The median forecast of economists surveyed by Bloomberg called for a rise of 0.2 percent.
Fed Chairman Ben S. Bernanke yesterday put investors on notice that the central bank is prepared to begin phasing out one of the most aggressive easing programs in its century-long history. Policy makers will probably taper its $85 billion in monthly bond buying later in 2013 and halt purchases around mid-2014 as long as the world’s largest economy performs in line with Fed projections, Bernanke told reporters yesterday.
Members of the policy making Federal Open Market Committee issued a statement yesterday saying the group “sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall,” when they began the additional bond-buying program.
Gains in housing are part of the improving outlook. The median forecast of 74 economists surveyed by Bloomberg projected sales of existing homes in the U.S. would climb to a 5 million rate. Estimates ranged from 4.9 million to 5.18 million.
Purchases rose in all four regions, led by an 8 percent gain in the Midwest and a 4 percent advance in the South.
The median price of an existing home jumped 15.4 percent in May from a year earlier to $208,000 last month, the highest since July 2008. The monthly gain was the biggest since October 2005, when the median surged a record 16.6 percent.
“The residential real estate market in the U.S. is on fire,” said Brian Jones, senior U.S. economist in New York at Societe Generale, who projected a 5.17 million annual rate for home sales. “Ultimately, I think it’s a sign of confidence in the U.S. economy.”
Part of the reason for the surge in property values is a lack of supply. There were 2.22 million existing homes on the market in May, today’s report showed. While that is up from 2.15 million a month earlier, the figures aren’t adjusted to reflect the typical increase in inventory during this time of year.
Last month’s supply was the smallest for any May since 2002. Listed inventory was 10.1 percent below a year ago.
“The housing market is too good,” Lawrence Yun, chief economist of the Realtors group, said at a news conference as the figures were released. “It is breaking out again. It is being accompanied by an increase in home values. We do need to see a moderation of home-price growth and that can only come from new supply.”
Housing starts need to increase to a 1.5 million annualized rate to help temper home-price gains, Yun said. The market remains well short of that goal after builders broke ground on 914,000 houses last month, according to figures from the Commerce Department.
For some builders such as Fort Worth, Texas-based D.R. Horton Inc., the lack of housing inventory has given them room to increase prices.
“For the very first time in many, many, many years, we have pricing power and a lot of that just deals with the lack of lots that are available in the marketplace,” Donald J. Tomnitz, chief executive officer, said in a June 12 presentation. “The new-home inventory, as you know, the number of months’ supply has decreased dramatically. And so we’re in a powerful position to continue to increase prices as we move forward.”
Existing-home sales are recovering after reaching a 13-year low of 4.11 million in 2008. The market peaked at a record 7.08 million in 2005.
The improvement in housing has rippled through the economy to give a boost to home-improvement product makers including Masco Corp., builders, real estate brokers and mortgage lenders.
“Housing dynamics are improving,” Timothy Wadhams, chief executive officer of Masco, said in a May 22 presentation. The Taylor, Michigan-based company manufactures and sells home-improvement and building products such as cabinetry. “Demand is picking up, inventories are very, very low. So we ought to see a nice lift there.”