Sales of previously owned U.S. homes climbed more than forecast in July to the fastest pace since November 2009 as more buyers entered the market before further increases in mortgage rates.
Purchases of previously owned houses advanced 6.5% to a 5.39 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast of 76 economists surveyed by Bloomberg projected a 5.15 million pace. Prices increased 13.7% from a year earlier.
Higher property values that allow more Americans to list their homes, job gains and still-historically low mortgage rates are underpinning demand. At the same time, bigger increases in borrowing costs threaten to slow the pace of improvement in housing, which has been mainstay of economic growth.
“If you look at housing affordability it’s still very attractive,” Ward McCarthy, chief financial economist at Jefferies LLC in New York, said before the report. “The rise in mortgage rates is probably going to start having a little bit of an effect in the fall. I do think we’ll see improvement continue but at a little bit of a slower pace as the year progresses, and frankly that’s probably a healthy sign.”
Estimates of sales in the Bloomberg survey ranged from 4.95 million to 5.5 million after a previously reported 5.08 million pace in June.
Compared with a year earlier, purchases increased 17.2% in July on an adjusted basis, today’s report showed.
The median price of an existing home climbed to $213,500 last month from $187,800 a year earlier.
The number of previously owned homes on the market climbed to 2.28 million in July from 2.16 million a month earlier, according to the report. At the current sales pace, it would take 5.1 months to sell those houses, the same as in June.
The inventory of unsold homes was down from 2.4 million a year earlier.
Higher borrowing costs encouraged more Americans to lock in rates before they head higher. The average rate for a 30-year fixed mortgage climbed to 4.4% in the week ended Aug. 15 from a record low of 3.31% in November, according to Freddie Mac.
“The increases in rates panicked some buyers,” Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released. Higher borrowing costs “generally provide a sense of urgency to close” on home purchases.
Yun said that bigger increases in rates will “reduce the pool of eligible homebuyers” and the average 30-year mortgage may reach 5% by year-end.
Existing-home purchases are recovering from a 13-year low of 4.11 million reached in 2008. Annual sales peaked at 7.08 million three years earlier. A total of 4.66 million previously- owned houses were sold in 2012.
The Realtors group projects 5.05 million home sales this year, and Yun said that figure may soon be revised higher.
Sales climbed in all four U.S. regions, with the biggest gain in the Northeast.
Supply constraints, rising home prices and an improved labor market have benefited homebuilders, whose confidence climbed this month to the highest level since November 2005. A Commerce Department report last week showed housing starts advanced in July, paced by a rebound in construction of multifamily projects. Building permits also rose, signaling construction will keep rising.
Higher borrowing costs may be seeping into consumer confidence. A preliminary sentiment index from Thomson Reuters/University of Michigan fell in August to 80 from a six- year high of 85.1 a month earlier.
The index on home-buying conditions dropped this month to the lowest level since February, Daniel Silver at JPMorgan Chase & Co. in New York, who had access to the data, said in an Aug. 16 research note.
Work began on 2.2% fewer single-family homes last month, with starts falling to a 591,000 annualized rate, the slowest since November, Commerce Department data showed last week.
Investors in July accounted for 16% of all existing- home sales, down from a peak of 22% in February, according to Yun.
The pickup in borrowing costs may start to work to the advantage of some home-buyers, who have been competing with investors during the housing rebound, Spencer Rascoff, chief executive officer of Zillow Inc., said on an Aug. 6 conference call. Zillow, the operator of the largest U.S. real-estate website, reported sales jumped 69% in the second quarter from a year earlier, topping the average estimate of nine analysts.
“What’s happening is investor buyers, cash buyers are moving out of the market, or they’re becoming a smaller portion of the market as mortgage rates rise,” Rascoff said. “So on some level, there’s actually something of a benefit of rising interest rates kind of getting cash buyers,” out of the market and helping traditional home-buyers win offers.