Purchases of previously owned homes unexpectedly declined in August for the first time in five months as investors retreated from the market.
Existing home sales dropped 1.8% to a 5.05 million annual pace, from a revised 5.14 million pace in July, the National Association of Realtors reported today in Washington. The median forecast of 72 economists in a Bloomberg survey called for 5.2 million. The share of properties sold to investors was the lowest in almost five years.
As wage gains are slow to materialize and credit conditions remain tight, it has been difficult for first-time homebuyers to enter the housing market to make up the decrease in investor activity. Employment growth and easier lending rules could help would-be buyers to feel more secure in taking the plunge into homeownership.
“Maybe there’s been a little loss of upward momentum,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “The housing market still has quite a long way to recover from its weakness.”
Estimates in the Bloomberg survey of economists ranged from a sales pace of 5 million to 5.35 million. The July figure was revised from a previously reported 5.15 million.
The median price of an existing home rose 4.8% to $219,800 in August from $209,700 a year earlier, today’s report showed.
The number of existing properties for sale fell to 2.31 million from 2.35 million. At the current pace, it would take 5.5 months to sell those houses, the same as in July.
Transactions paid for completely in cash fell to about 23% of the market from the usual 33%, NAR Chief Economist Lawrence Yun said at a news conference as the figures were released. Investors accounted for 12%, the fewest since late 2009, he said.
The drop in sales last month is “primarily attributable to investors stepping out of the market,” Yun said.
Existing home sales, which are tabulated when a purchase contract closes, have rebounded from a 13-year low of 4.11 million in 2008. They reached a record 7.08 million in 2005.
The housing recovery has been inconsistent this year after harsh winter weather slowed progress in the first quarter. Data for this quarter has seesawed.
A gauge of homebuilder confidence rose last month to the highest level since 2005. Meanwhile, beginning home construction slumped 14.4%, the most since April 2013, following a pace in July that was the strongest since November 2007, the Commerce Department said last week.
Cheaper borrowing costs could help buyers enter the market. The average 30-year, fixed-rate mortgage was 4.23% in the week ended Sept. 18, down from 4.53% at the start of January, according to data from Freddie Mac.
Mortgage rates have held low as the Federal Reserve keeps the main interest rate near zero. At their meeting last week, members of the Federal Reserve’s policy-making Federal Open Market Committee chose to stay the course, reducing their pace of bond purchases while maintaining that the main interest rate will remain low for a “considerable time” after the program ends.
As housing demand persists amid the low-rate environment, it is helping homebuilders, including Miami-based Lennar Corp. Even so, progress has been gradual.
“The market has continued a slow and steady recovery that is markedly different from past down-cycle recoveries,” Chief Executive Officer Stuart Miller said in a Sept. 17 earnings call. “History would suggest a more vertical recovery, especially given the severity of the economic decline. This recovery has been a decidedly different experience as the slope of recovery has been shallow and the expected acceleration has not materialized.”