story by Shobhana Chandra
Sales of previously owned U.S. homes decreased in September from the highest level in two years, restrained by a lack of supply that may keep pushing prices up.
Purchases fell 1.7% to a 4.75 million annual rate, matching the median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington. The median price from a year earlier jumped by the most since 2005 as inventories dwindled.
The number of existing homes for sale is drying up as demand improves, hedge funds snap up foreclosed properties to rent out and owners remain reluctant to sell until prices rise further. Mortgages rates driven to record lows by Federal Reserve stimulus, along with a falling jobless rate, indicate sales will keep improving.
“There are a lot of reasons to be positive on housing,” said Tom Simons, an economist at Jefferies Group Inc. in New York, who correctly projected the drop. “Mortgage rates are near all-time lows, and inventories are at generational lows. If housing prices continue to rise, people are incentivized to get off the sidelines. It all sets up for continued improvement.”
The median forecast was based on a Bloomberg survey of 78 economists. Estimates ranged from 4.53 million to 4.9 million. The prior month’s pace was revised to 4.83 million from a previously reported 4.82 million. Those were the strongest back- to-back readings since mid 2010, when the government’s first- time buyer credit lapsed.
The median price of an existing home climbed to $183,900, up 11.3% from September 2011. That was the biggest year- over-year gain since November 2005. Compared with a year earlier, purchases increased 11%.
The number of previously owned homes on the market dropped 3.3% to 2.32 million, the fewest for any September since 2002. At the current sales pace, it would take 5.9 months to sell those houses compared with 6 months at the end of August. The months’ supply was the lowest since March 2006.
The market is now heading into a traditionally weak period for inventory, indicating the months’ supply may drop to the 5-month area in the December-to-February time frame, Lawrence Yun, NAR chief economist, said in a news conference as the figures were released.
“Certainly we have broken out of the slump,” Yun said. “Prices are now showing an accelerating trend. This is a reflection of low inventory. Builders need to increase production.”
In September, Fed Chairman Ben Bernanke called housing “one of the missing pistons in the engine” as he announced the third round of large-scale asset purchases intended to push down long-term interest rates and spur growth.
The lower borrowing costs are bolstering home demand, even as tighter credit standards make it harder for many Americans to get a mortgage. The average rate on a 30-year fixed loan was 3.37% in the week ended Oct. 18, near a record-low of 3.36 reported Oct. 4, according to data from Freddie Mac that dates back to 1971.
Distressed homes, which include foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 24% of the September total, up from 22% in the prior month, today’s report showed.
All-cash transactions accounted for 28% of last month’s sales, and investors, the majority of who are all-cash buyers, accounted for 18%.
American households may also be drawn into the market as a falling jobless rate helps bolster confidence. Unemployment dropped to 7.8% in September, the lowest since President Barack Obama took office in January 2009. The Bloomberg Consumer Comfort Index last week climbed to a six-month high, and a similar measure from Thomson Reuters/University of Michigan jumped this month to a five-year high.
Ohio was among six of eight states considered U.S. presidential election battlegrounds that showed a September drop in unemployment, according to Labor Department data issued today less than three weeks before voters head to the polls.
The jobless rate in Ohio declined to 7% from 7.2% in August. Unemployment also fell in Wisconsin, Colorado, Florida, Iowa and Nevada. The rate was unchanged from August in New Hampshire and Virginia. Joblessness in five of the states is less than the national average.
Today’s report from the Realtors’ group showed sales dropped in three of four regions, led by a 6.3% decrease in the Northeast. Demand rose 0.5% in the South.
Existing-home sales have improved after reaching a low of a 3.39 million annual rate in July 2010. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.
Other reports signal that housing is on the mend. Home starts surged 15% in September to an 872,000 annual rate, the fastest since July 2008, according to Commerce Department data released this week. An increase in building permits signaled the gains will be sustained.
Construction companies are less pessimistic. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006 and the sixth straight gain. Still, readings below 50 mean more respondents said conditions were poor.