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Sales of Previously Owned Homes Unexpectedly Decline

Thursday, 21 May 2015 11:59 AM

Purchases of previously owned homes unexpectedly fell in April, a sign the industry’s recovery remains uneven.

Contract closings dropped 3.3 percent to a 5.04 million annualized rate after a 5.21 million pace that was the strongest in almost two years, figures from the National Association of Realtors showed Thursday in Washington. The median forecast of 78 economists in a Bloomberg survey called for a rise to 5.23 million. Prices jumped as the number of houses for sales declined from the same time last year.

The rising prices and a limited supply of properties, combined with too-small growth in pay and lingering concerns about taking on too much debt, are holding the market back. Signs that younger Americans are forming families and venturing out on their own remain a bright spot that could propel a rebound in the housing industry down the road.

“Resale activity is limited by the inventory situation,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York and the second-best forecaster of existing home sales data over the past two years, according to data compiled by Bloomberg. “Inventory is pretty thin at the moment, and to the extent there’s a pickup in demand, that will benefit new home sales increasingly at the margin.”

Other reports today showed the average number of Americans filing for unemployment benefits over the past four weeks dropped to a 15-year low and the index of leading economic indicators rose in April by the most in nine months.

Share Prices

Stocks hovered near record highs after the data. The Standard & Poor’s 500 Index rose 0.1 percent to 2,128.91 at 10:35 a.m. in New York.

Estimates in the Bloomberg survey of economists for existing home sales ranged from 4.96 million to 5.32 million. The prior month’s pace was revised from a previously reported 5.19 million.

Compared with a year earlier, purchases increased 5.5 percent before adjusting for seasonal variations.

Existing home sales, tabulated when a purchase contract closes, account for more than 90 percent of the residential market. New-home purchases, which make up about 8 percent and are tabulated when contracts are signed, are considered a timelier barometer.

Median Price

The median price of an existing home climbed 8.9 percent from a year earlier, the biggest 12-month gain since January 2014, to reach $219,400, the report showed.

While increasing property values hurt affordability for prospective buyers, they help bolster owners’ household wealth and build confidence among those whose homes are still worth less than their mortgages.

One reason prices are picking up is a lack of supply. The number of previously owned homes on the market fell 0.9 percent from a year earlier to 2.21 million.

Last month, it took about 39 days to sell a house once it came on the market, the least since the middle of 2013, Lawrence Yun, NAR chief economist, said at a news conference as the figures were released. Also, about 40 percent of the listings sold at or above the asking price, indicating multiple bids are becoming common in some areas, he said.

Prices, Supply

“We don’t want prices to get too far ahead of income, but that is what’s happening because of lack of supply,” Yun said in a press conference as the figures were released. Given the trend, the median price this year will probably top 2006 as the highest on record, he said.

At the current sales pace, it would take 5.3 months to sell those houses compared with 4.6 months at the end of the prior month. Less than a five months’ supply is considered a tight market, the Realtors group has said.

Sales of existing single-family homes decreased 3.7 percent to an annual rate of 4.43 million. Purchases of multifamily properties — including condominiums and townhouses — were unchanged at 610,000.

Purchases declined in three of four regions, led by a 6.8 percent drop in the South.

Even as the housing recovery makes progress, it still has a ways to go. A record 7.08 million previously-owned houses were sold in 2005. Three years later, existing-home sales plunged to a 13-year low of 4.11 million in 2008.

Home Remodeling

Rising property prices and the early arrival of warm weather are spurring remodeling projects. Home Depot, the largest home-improvement retailer, posted first-quarter profit that topped analysts’ estimates. The spring is Home Depot’s biggest revenue generator -- even more important than Christmas.

“We had a stronger-than-expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market,” Chief Executive Officer Craig Menear said in a May 19 statement.

Home sales will continue to benefit from the improving job market. The unemployment rate fell in April to 5.4 percent, the lowest since May 2008, according to the Labor Department. Payrolls climbed by 223,000 in April after an 85,000 in March.

Wage gains, though, remain lackluster. Hourly pay was up 2.2 percent in April from a year earlier, holding within the narrow range tracked over the past four years.

Mortgage Rates

Low borrowing costs are also helping buyers. The average 30-year, fixed-rate mortgage was 3.85 percent in the week ended May 14, close to the level at the start of 2015 and below last year’s high of 4.53 percent in early January 2014, according to data from Freddie Mac in McLean, Virginia. It plunged to 3.31 percent in November 2012.

Improved demand is translating into homebuilding. Housing starts soared in April to a 1.14 million annualized rate, the most since November 2007, from 944,000 in March, Commerce Department figures showed. More permits, a proxy for future construction, were issued than at any time since June 2008.

PulteGroup Inc., the third-largest U.S. homebuilder, is among companies that are optimistic about demand.

“Given the acceleration in U.S. housing demand in the early stage of the spring selling season, our expectations are that the strengthening of demand is sustainable and should drive better new home sales for all of 2015,” Chief Executive Officer Richard Dugas said on an earnings conference call on April 23.

--With assistance from Chris Middleton in Washington.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net

© Copyright 2018 Bloomberg News. All rights reserved.

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Purchases of previously owned homes unexpectedly fell in April, a sign the industry's recovery remains uneven.
home, house, sale, economy
Thursday, 21 May 2015 11:59 AM
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