Sales of previously owned homes unexpectedly climbed in October to the highest level since February 2007, a sign of momentum in the housing market a month before a jump in borrowing costs, National Association of Realtors data showed Tuesday.
Contract closings rose 2% to a 5.6 million annual rate (the forecast was 5.44 million).
Steady hiring, a pickup in incomes, and better household finances are propelling demand in the repeat sales market, even as a shortage of available properties limits choices and pushes up prices. Bigger advances may prove difficult after a surge in mortgage rates on speculation President-elect Donald Trump's economic plans will spark inflation. Higher borrowing costs could discourage first-time buyers who may already have trouble qualifying for a loan — a hurdle for further improvement in the housing recovery.
The October advance "may be indicative of pent-up demand that was unrealized in the summer," Lawrence Yun, chief economist at the Realtors group in Washington, told reporters as the data were released. More recently, "with the rise in rates, we may begin to see some modest reduction in home sales." As long as there's job creation, the impact should be "minimal."
"This is all very encouraging, but it has to be seen in the context of the recent decline in mortgage applications, which if sustained likely will push home sales down sharply in the early part of next year," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note. "We expect further declines in demand as rates climb."
Sales advanced in all four regions, led by a 2.8% gain in the South and a 2.3% rise in the Midwest. At the current pace, it would take 4.3 months to sell the houses on the market, the quickest since January and down from 4.4 months in September; the Realtors group considers a six-month supply as normal.
Single-family home sales increased 2.3% to an annual rate of 4.99 million; purchases of condominium and co-op units were steady at a 610,000 pace. First-time buyers accounted for 33% of all sales, compared with 34% the prior month. Homes sold in 41 days, down from 57 days a year earlier. Yun said the NAR projects a small sales gain in 2017 to 5.46 million from an expected 5.36 million this year; prices are forecast to climb 4% in 2017.
