Sales of existing homes fall short, prices keep rising
Sales of previously owned homes fell short of a 5 million annual rate in February for a second month, showing an industry struggling to gain traction amid rising prices and a lack of inventory.
Closings, which usually take place a month or two after a contract is signed, rose 1.2 percent to a 4.88 million annual rate, the National Association of Realtors reported Monday in Washington. The median value of a house climbed 7.5 percent from the same month last year while the number of properties on the market was little changed.
Prices that are rising faster than incomes, still-tight borrowing standards and a lack of properties from which to choose are preventing Americans from taking advantage of mortgage rates that remain near historical lows. Further labor- market gains and a loosening of credit rules might help offset these hurdles as the busiest time of year for real-estate agents approaches.
“Still-low inventories continue to play a role in the flattish trend of home sales,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said in a research note. “Rising incomes, albeit at a subdued pace, still-low borrowing costs and job creation remain the pillars supporting a stronger U.S. housing market.”
Stocks rose following Standard & Poor’s 500 Index biggest weekly rally in more than a month as gains in energy companies offset declines in health-care shares. The S&P 500 increased 0.2 percent to 2,111.88 at 10:39 a.m. in New York. The S&P Supercomposite Homebuilding Index advanced 0.3 percent.
The median forecast of 77 economists surveyed by Bloomberg called for sales to pick up to a 4.9 million annual rate. Estimates ranged from 4.65 million to 5.06 million. January’s pace was unrevised at 4.82 million.
The median price of an existing home rose to $202,600 from $188,400 in February 2014, the report showed. The 7.5 percent increase over the past 12 months was the biggest in a year. The Portland-area median is much higher — around $285,000.
Price gains of this size at this point of the housing rebound “are unhealthy for the market,” Lawrence Yun, NAR chief economist, told reporters as the figures were released.
One reason property values are escalating is because there aren’t many homes from which to choose. There were 1.89 million houses on the market at the end of the month, down 0.5 percent from the same month last year.
“It’s all about inventory,” said Yun. “If we had more inventory, it would restrain price growth.”
At the current sales pace it would take 4.6 months to run through the inventory, the same as in January. Six to seven months is considered more normal, Yun said. In the Portland area, inventory is even scarcer, about three months.
Quicken Loans vice president Chris Smith said the low inventory puts more pressure on the coming months.
“The next couple months are some of the most critical of the entire year for housing,” Smith said. “Sluggish numbers may continue if inventory doesn’t increase, either through new home construction or by more existing owners listing their homes.”
Sales of existing single-family homes climbed 1.4 percent to an annual rate of 4.34 million. Purchases of multifamily properties — including condominiums — were little changed at 540,000 pace.
Purchases increased in two of four regions, led by a 5.7 percent gain in the West. Sales dropped 6.5 percent in the Northeast and were little changed in the Midwest, indicating harsh winter weather limited activity, said NAR’s Yun.
Last month, the eastern seaboard saw below-normal temperatures from Atlanta to New York and record snowfalls in New England. The National Oceanic and Atmospheric Administration’s data showed the snowiest month on record for Boston, while record-low temperatures for any February were reached in Chicago, Buffalo and Cleveland.
Rising prices are also starting to drive away investors, who accounted for 14 percent of contracts last month, down from 17 percent in January and 21 percent a year ago.
Housing starts plummeted in February by the most since 2011 as plunging temperatures and snow limited construction. Work began on 897,000 houses at an annualized rate, down 17 percent from January and the fewest in a year, the Commerce Department reported earlier this month. The pace was slower than the most pessimistic projection economists surveyed by Bloomberg.
Beyond severe weather, robust payroll gains and still-cheap borrowing costs should help offset weak wage growth as Americans consider big-ticket purchases.
Employers added more jobs than forecast in February and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years. The 295,000 gain last month was stronger than the 259,670 monthly average in 2014 that was the best labor-market performance since 1999.
Employment gains are among reasons the Realtors’ group remains optimistic on the outlook for demand. Sales will probably total 5.2 million to 5.3 million this year, the most since 2006, according to Yun.
The average 30-year, fixed-rate mortgage dropped to 3.78 percent in the week ended March 19, close to the 3.31 percent rate in November 2012 that was the lowest in data back to 1971, according to Freddie Mac data.
Household incomes have been slower to gain ground. Average hourly earnings rose 2 percent in February from the same time last year, less than projected and matching the increase on average since the expansion began in mid-2009.
Lennar Corp., the Miami-based homebuilder, sees more slow and steady healing this year in the market.
“We are still in the early stages of a protracted, slower- than-history-would-suggest housing recovery, and an early read from this year’s spring selling season suggests that the market is continuing to improve at a very steady pace,” Chief Executive Officer Stuart Miller said on a March 19 earnings call. “The mortgage market is loosening incrementally with time and enabling more demand to be realized.”
Existing home sales, which are tallied when purchase contracts close, account for more than 90 percent of the residential market. A timelier barometer is new-home purchases, because they are tabulated earlier in the process, when deals are signed. They constitute about 7 percent of the market.
Economists project those sales fell to a 465,000 pace in February after 481,000 the prior month, according to the Bloomberg survey median ahead of Tuesday’s report from the Commerce Department.