Sales of previously owned U.S. homes climbed in October, indicating gains in the real estate market are being sustained by cheap borrowing costs.
Purchases of existing houses, tabulated when a contract closes, increased 2.1% to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today (Nov. 19) in Washington. The median price rose from a year ago as inventories dropped to the lowest level in almost a decade.
Propelled by the lowest mortgage rates on record, cheaper properties and improved consumer sentiment, housing is one of the economy’s sources of strength. The pace of October sales underscores what Federal Reserve Chairman Ben Bernanke said were “signs of improvement” in a market still hampered by strict bank lending standards.
“Housing’s cheap, borrowing is cheap and, if you can get credit, it’s a great time to buy,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, who projected a 4.8 million annual rate for October sales. “We’re fighting our way through distressed-property sales.”
The median price of an existing home climbed 11.1% from October 2011 to $178,600, today’s report showed. The increase in October reflected a pickup in sales of more expensive properties, the group said.
The number of previously owned homes on the market decreased 1.4% to 2.14 million, the lowest since December 2002. At the current sales pace, it would take 5.4 months, the fewest since February 2006, to sell those houses compared with 5.6 months at the end of September.
Sales of existing single-family homes increased 1.9% to an annual rate of 4.22 million. Purchases of multifamily properties – including condominiums – rose to a 570,000 pace from 550,000.
Purchases climbed in three of the four regions, reflecting a 4.4% increase in the West, a 2.1% gain in the South and a 1.8 % rise in the Midwest. Demand fell 1.7% in the Northeast, reflecting a slowdown in purchases due to superstorm Sandy.
“We anticipate more impact to be showing up in November and December,” Lawrence Yun, NAR chief economist, said in a news conference as the figures were released.
Existing-home sales have improved after reaching a low of a 3.39 million annual rate in July 2010. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.
Distressed properties accounted for 24% of October sales, the same as a month earlier. All-cash sales were at 29% of transactions in October, up for 28% a month earlier.
Cheaper borrowing costs are fueling sales for those who can get financing. The average rate on a 30-year, fixed mortgage declined to 3.34% last week, the lowest in data going back to 1972, according to McLean, Va.-based Freddie Mac.
Another report today showed confidence among homebuilders unexpectedly climbed in November to a six-year high, propelled by the biggest jump in sales in a decade. The National Association of Home Builders/Wells Fargo index of builder confidence increased to 46, the highest level since May 2006, from 41 in October, according to the Washington-based group.
Nonetheless, readings lower than 50 still mean more respondents said conditions were poor than good.
“Continued weakness in housing – reflected in falling prices, low rates of new construction, and historic levels of foreclosure – has proved a powerful headwind to recovery,” Bernanke said last week. “It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country.”
The Fed chairman is pressing on with record easing including a plan to buy $40 billion a month of mortgage-backed securities, aiming to spur growth and reduce a 7.9% unemployment rate.
He has resorted to unorthodox policies six years after home prices started a plunge that knocked the economy into the longest recession since the Great Depression.
While tighter credit standards after a collapse in the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery,” Bernanke said.
Some members of the Federal Open Market Committee said monthly mortgage bond purchases by the Fed are “likely to reinforce the nascent recovery in the housing market,” according to minutes of their Oct. 23-24 meeting released Nov. 14.
Construction and home repair companies may get a lift from clean-up activity after Sandy, which swept up the Atlantic coast and left a path of destruction in the New Jersey and New York. The storm may provide a boost similar to that provided by Hurricane Irene, which added about $360 million in sales last year, Home Depot Inc. executives said on a Nov. 13 earnings call.
“The property damage, as we understand it, related to Irene was about $16 billion; the property damage for Sandy is about $20 billion, so it would suggest possibly higher sales, but it’s impossible for us to know right now,” said Carol Tome, the Atlanta-based company’s chief financial officer.