Purchases of previously owned homes dropped more than forecast in November as residential real estate struggles to sustain its recovery even as borrowing costs remain low.
Sales fell 6.1% to a 4.93 million annual rate last month, the weakest reading since May, from 5.25 million pace in October, figures from the National Association of Realtors showed today in Washington. The median forecast of 73 economists surveyed by Bloomberg projected sales would decline to a 5.2 million rate.
Low mortgage rates haven't been enough to lure back additional prospective buyers who've been disappointed with the lack of inventory in the market, according to NAR's chief economist. A strengthening labor market will be needed to boost growth in the industry as the Federal Reserve considers raising benchmark interest rates.
"The recovery in housing remains slow," said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose forecast for 4.94 million sales pace was among the closest in the Bloomberg survey. "I don't think it's really an indication that there's a fundamental weakening in the housing market."
Stocks fluctuated, after the biggest three-day jump since 2011, as gains in technology shares offset the first drop in five days for energy companies. The Standard & Poor 500 Index rose 0.1% to 2,073.51 at 10:24 a.m. in New York.
Estimates in the Bloomberg survey of economists ranged from a sales pace of 4.93 million to 5.3 million. October's figure was revised from a previously reported 5.26 million.
Compared with a year earlier, purchases increased 2.1% in November on an adjusted basis, today's report showed.
The median price of an existing home increased 5% from a year earlier to $205,300 last month.
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The size of the decline in demand last month was "somewhat of a puzzle," Lawrence Yun, NAR chief economist, said in a news conference today as the figures were released. All the things influencing sales are positive, including a strengthening economy, more hiring, rising consumer confidence, higher stock prices and low mortgage rate, he said.
That probably means the decline could be a "one-month aberration," said Yun.
The drop in inventory may also mean prospective home buyers just don't have enough of a selection and are staying away until there is more supply, he said.
The real-estate agents' group is keeping a close tab on the possibility that current owners are suffering from "rate- lock," meaning they don't want to move and risk losing their ultra-low mortgage rates, Yun said. He also said that the stock market's swoon in October could have caused some prospective buyers to hold off, and that bad weather probably didn't play a role in the slowdown.
The median time a home was on the market increased last month to 65 days from 56 days a year ago.
All four regions showed a decrease in sales last month, led by a 9.6% drop in the West.
Purchases of single-family homes decreased 6.3%, while condominiums fell 4.8%.
Housing has struggled to accelerate this year even amid low mortgage rates, as rising property values and strict lending standards cause some young or lower-income buyers to stay out of the market. First-time buyers accounted for 31% of all purchases in November, the highest share in two years, today's report showed. They are coming back "slowly," Yun said.
Commerce Department data last week showed that the pace of U.S. home construction slowed in November, with housing starts declining 1.6% to a 1.03 million annualized rate. Building permits also fell, showing construction is also unlikely to surge in the immediate future.
Mortgage rate stability will play an important role in convincing some prospective buyers to take the plunge, especially as Fed officials debate when to raise their benchmark interest rates for the first time since 2006. Conversely, an impending rate-rise may encourage some buyers to pre-emptively jump into the market.
The average rate for a 30-year fixed mortgage was 3.8% in the week ended Dec. 18, according to Freddie Mac. That's the lowest level since May 2013, when then-Fed Chair Ben S. Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains.
Homebuilders including PulteGroup Inc. remain optimistic about the industry's prospects. Confidence among U.S. homebuilders hovered close to a nine-year high this month, according to the National Association of Home Builders/Wells Fargo sentiment gauge.
"Our expectation would be we continue to move towards normal," Robert O'Shaughnessy, chief financial of Bloomfield Hills, Michigan-based PulteGroup, said at a Dec. 9 meeting with investors. The improvement will come at "a measured pace," he said, with some regions performing better than others.
Sustained job growth, which has accelerated this year, would help support that outlook. Employers have added 2.65 million workers to payrolls so far this year, which is already the biggest annual gain since 1999. At 5.8%, the jobless rate matches the lowest since mid-2008, and is quickly approaching the 5.2% to 5.5% that Fed policy makers consider full employment.
"We do have decent GDP growth. We do have jobs being created and maybe the start of wage inflation," PulteGroup's O'Shaughnessy said. "This is the basic framework about how we think about the market."
