Purchases of previously owned homes unexpectedly rose in July to a 10-month high as low borrowing costs and an increase in inventory drew buyers.
Existing home sales climbed 2.4% to a 5.15 million annual pace, the most since September, from a revised 5.03 million pace in June, the National Association of Realtors reported today in Washington. The median forecast of 74 economists in a Bloomberg survey called for 5.02 million. The number of homes for sale was the highest in almost two years.
Employment growth, rising property values and a decline in consumer debt are giving would-be buyers the confidence to take the plunge into real estate. Builders are also showing signs of life after a construction lull at the start of the year, a sign that the market’s momentum is sustainable.
Housing is “going to continue to pull up,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who accurately forecast the increase in sales. “The labor market continues to improve, interest rates are low, affordability is high.”
Fewer Americans than forecast applied for unemployment benefits last week, a sign the job market is making progress, another report today showed. Jobless claims fell by 14,000 to 298,000 in the week ended Aug. 16, according to Labor Department figures. The median forecast of 46 economists surveyed by Bloomberg called for 303,000.
Stocks climbed, sending the Standard Poor’s 500 Index above a closing record. The SP 500 rose 0.1% to 1,988.44 at 10:18 a.m. in New York.
Estimates in the Bloomberg survey of economists ranged from a sales pace of 4.85 million to 5.17 million. The June figure was revised from a previously reported 5.04 million.
The median price of an existing home rose 4.9 percent to $222,900 in July from $212,400 a year earlier, today’s report showed.
The number of existing properties for sale climbed to 2.37 million, the most since August 2012. At the current pace, it would take 5.5 months to sell those houses, matching the May and June reading. Inventory was up from 2.24 million a year earlier.
Distressed property sales, including foreclosures, accounted for 9% of the total last month, the least since records began in 2008, the group said.
“There is significant pent-up demand that has yet to reach the marketplace,” NAR Chief Economist Lawrence Yun said at a news conference as the figures were released. “We are in a multi-year housing market recovery.”
Existing home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008 after reaching a record 7.08 million in 2005.
The housing rebound has been giving mixed signals this year after a frigid and snowy winter and gradual improvement in the labor market. Residential construction starts increased in July to an annual pace of 1.09 million units, the highest level in eight months, as permits for future projects advanced 8.1%.
Cheaper borrowing costs have helped. The average 30-year, fixed-rate mortgage was 4.1% in the week ended Aug. 21, the lowest this year and down from 4.53% at the start of January, according to data from Freddie Mac.
At their July meeting, Federal Reserve officials raised the possibility that they might increase their target interest rate sooner than anticipated in light of labor-market strength, according to meeting minutes released yesterday. Weak wage growth and low inflation have given the Fed room to hold the target rate near zero, which has kept mortgage rates low.
As the economy recovers, housing demand is boosting construction, with residential builders including M.D.C. Holdings Inc. and Ryland Group Inc. reporting positive outlooks. Orders at Denver-based M.D.C increased 5% in the three months ended June 30, to 1,419 homes.
“We continue to be optimistic about the future of our industry despite the volatility we have seen over the past year,” Chairman and Chief Executive Officer Larry Mizel said on a July 29 earnings call. “Acceleration in the improvement of employment levels and consumer confidence supports our long-term view that the homebuilding industry is poised for continued growth.”