Sales Climb as U.S. Housing Market Adjusts to Rates: EconomyLorraine Woellert and Victoria Stilwell
Sales of previously owned homes climbed in December for the first time in five months, capping the best year since 2006 and indicating the real-estate market is starting to adjust to higher borrowing costs.
Purchases rose 1 percent to a 4.87 million annual pace, the National Association of Realtors reported today in Washington. Other reports showed claims for jobless benefits held last week near the lowest level in more than a month and the index of leading indicators climbed in December.
Faster employment growth, rising property values and a decline in consumer debt are giving would-be buyers the confidence to take the plunge into homeownership. Growing demand will also spur new construction and home improvements that will boost gross domestic product in 2014.
“We’ll see better job growth, a better housing market and better overall GDP growth throughout 2014,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., among the biggest mortgage lenders in the U.S. It “will be another year of recovery for the housing market with more sales, more homes constructed and prices up.”
Stocks dropped, with the Dow Jones Industrial Average tumbling to a one-month low, after a report showed manufacturing in China unexpectedly contracted in January. The Dow lost 175.99 points, or 1.1 percent to 16,197.35 at the close in New York. The Standard & Poor’s 500 Index fell 0.9 percent to 1,828.46.
While investors focused on China, data today showed the global recovery is uneven. Euro-area factory output expanded faster than economists forecast in January, according to figures from Markit Economics.
A total of 5.09 million U.S. previously owned houses were sold in 2013 compared with 4.66 million the prior year and the most since 2006, today’s report from the real-estate agents’ group showed.
Purchases reached a 5.39 million annualized pace in July and August, a four-year high, before a jump in mortgage rates hurt demand.
The median forecast of 76 economists in a Bloomberg survey projected sales would reach a 4.93 million rate last month. Estimates ranged from 4.8 million to 5.1 million. November’s figure was revised to 4.82 million from a previously reported 4.9 million.
Another report today showed applications for unemployment benefits held near a six-week low, showing firings remain muted following the holidays. Jobless claims rose by 1,000 to 326,000 in the period ended Jan. 18, the Labor Department said in Washington.
Rising optimism about the growth outlook in the world’s largest economy is buoying business and consumer spending and keeping dismissals subdued. Further hiring gains and a pickup in wages -- following a smaller-than-projected increase in December payrolls that some blamed on bad weather -- would help households sustain demand in the first quarter.
“It’s reassuring,” said William Cheney, chief economist at John Hancock Financial Services Inc. in Boston. “After the December jobs report everybody was pretty nervous. This is a number that makes it more likely December was a fluke.”
Also today, figures from the New York-based Conference Board showed the index of leading indicators rose 0.1 percent in December after a revised 1 percent gain the prior month that was larger than previously estimated. The gauge is designed to predict the outlook for growth in the next three to six months.
“We are headed in a positive direction,” said Robert Rosener, an economist at Credit Agricole CIB in New York. “As the labor market continues to improve, and we have more job gains and fewer layoffs, that would be very positive for consumer spending.”
The median price of an existing home rose 9.9 percent to $198,000 in December from $189,200 a year earlier, today’s report showed. For all of 2013, the median price climbed 11.5 percent, the most in eight years, to $197,100.
The data doesn’t track the same house over time, which means the figures could be influenced by improving demand in parts of the country where homes are more expensive.
Other figures today indicated the jump in real-estate values may be losing momentum. Prices climbed 0.1 percent in November from October, the smallest monthly gain in almost two years, according to the Federal Housing Finance Agency. The index measures transactions for single-family properties financed with mortgages owned or securitized by Fannie Mae and Freddie Mac.
The Realtors’ group said bad weather may have restrained demand last month as sales fell in the Northeast and Midwest. The median time a home was on the market jumped in December to 72 days from 56 days a month earlier as “adverse weather reportedly delayed closings in many areas,” the group said in a statement.
Supply restraints probably also held the market back. The number of existing properties for sale fell 9.3 percent to 1.86 million from a month earlier. At the current pace, it would take 4.6 months to sell those houses, the lowest since February, compared with 5.1 months at the end of November. Inventory was up from 1.83 million a year earlier.
Purchases of single-family homes increased 1.9 percent to an annual rate of 4.3 million. The sales pace of multifamily properties including condominiums fell 5 percent to 570,000.
First-time buyers accounted for 27 percent of all purchases in December, the lowest since at least 2008.
“Normal would be closer to 40 percent,” NAR chief economist Lawrence Yun said at a news conference as the figures were released. “Two opposing forces are at work. One is job creation which is a positive factor for housing. But the negative is fast-declining affordability,” due in part to higher prices and mortgage rates.
The average rate for a 30-year fixed mortgage was 4.39 percent this week, up from 3.35 percent in early May, according to Freddie Mac data released today.
Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008 after reaching a record 7.08 million in 2005.
The housing rebound last year gained traction amid job gains and rising stock values. Residential construction starts soared in November to a five-year high. Sustained demand and a shortage of properties for sale have prompted builders to break ground on more dwellings, and mortgage lenders are reporting fewer delinquencies and healthier portfolios.
At Regions Financial Corp. in Birmingham, Alabama, mortgage production fell last year even as overall lending increased $4.5 billion, about 8 percent, as people took advantage of low interest rates earlier in 2013.
“Consumer balance sheets are healthier than they’ve been in some time, corporate balance sheets are in solid condition and the housing market in our communities continues to improve,” Chairman and Chief Executive Officer Grayson Hall said on a Jan. 21 earnings call. “These factors, along with an improving global outlook, should contribute to moderate to improving GDP growth in 2014.”