Sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009 and prices jumped, indicating more progress for residential real estate.
Purchases of existing houses increased 4.2% to an annualized rate of 5.18 million from 4.97 million in April, the National Association of Realtors figures showed today in Washington. The median forecast in a Bloomberg survey called for a 5 million rate of sales. The median selling price surged from a year ago by the most since October 2005, the group said.
Rising home values and mortgage rates within a percentage point of all-time lows will help encourage Americans to put their properties on the market and trade up. The increase in wealth from housing is also bolstering confidence and sustaining consumer spending that will keep fueling the economy.
“We’re seeing resilience in home sales and continued recovery in the housing market,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “As home values increase, more homeowners are in a positive equity situation, and that gives them more confidence to go out there and spend and borrow money. There’s a positive feedback loop.”
Stocks maintained losses after the Federal Reserve said yesterday that it may start paring record monetary stimulus. The Standard & Poor’s 500 Index dropped 1.2% to 1,609.95 at 10:10 a.m. in New York.
The median forecast in the Bloomberg survey of 74 economists ranged from 4.9 million to 5.18 million.
Purchases rose in all four regions, led by an 8% in Midwest and a 4% gain in the South.
The median price of an existing home increased 15.4% 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%.
Today’s report also showed that foreclosures and other distressed sales accounted for 18% of the total, matching the lowest since October 2008. First-time buyers accounted for 28% of purchases last month. They typically represent 40% to 45% of the market, according to the Realtors group.
Investors made up 18%, while all-cash transactions were 33%.
“The housing market is too good,” Lawrence Yun, chief economist at 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.
There were 2.22 million existing homes on the market in May, up from 2.15 million a month earlier, today’s figures showed. The supply fell to 5.1 months’ worth in May from 5.2 months. Listed inventory is 10.1% below a year ago.
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 for a lot of builders,” 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.”
Sales of newly built houses picked up to a 460,000 annualized rate in May, the highest since July 2008, according to the median forecast in a Bloomberg survey of economists before a June 25 Commerce Department report. Housing starts climbed to a 914,000 pace, a Commerce Department report this week showed.
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.”
Record monetary stimulus by the Fed has helped hold down mortgage rates. The average fixed rate on a 30-year loan was 3.98% in the week ended June 13, up from an all-time low of 3.31% in November, according to data from McLean, Virginia-based Freddie Mac.
They risk rising further after Fed Chairman Ben S. Bernanke yesterday said the central bank may end bond purchases in the middle of 2014 if the economy keeps improving.
“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”
Bernanke spoke after the Federal Open Market Committee said it would maintain the $85 billion pace of monthly asset purchases and that it sees the “downside risks to the outlook for the economy and the labor market as having diminished since the fall.”
“Interest rates have risen, but they’re still at historic lows,” Robert Niblock, chief executive officer of Lowe’s Cos., the second-largest U.S. home improvement retailer, said earlier this week in an interview. The Mooresville, North Carolina-based company’s sales in the second quarter have recovered from March and April when rainy, colder-than-normal weather limited demand, he said.