Purchases of previously owned U.S. homes rose more than projected in May, a sign the industry is stabilizing after a weather-depressed quarter.
Sales climbed 4.9 percent to a 4.89 million annualized rate, the most since October, after a 4.66 million pace in April, figures from the National Association of Realtors showed today in Washington. The median forecast of 70 economists in a Bloomberg survey called for a rise to 4.74 million. Prices increased at the slowest pace in more than two years.
A bigger supply of houses, smaller price gains, rising employment and still-low borrowing costs may encourage more Americans to come into the market. Improving demand is prompting a pickup in construction, and builders such as Hovnanian Enterprises Inc. (HOV) are optimistic the recovery remains on track.
“We’ve still got relatively favorable conditions for home sales,” Tom Simons, an economist at Jefferies LLC in New York, said before the report. “There is continued payroll growth. We haven’t had any dramatic increase in mortgage rates. More properties are coming on the market.”
Stocks fluctuated, after the Standard & Poor’s 500 Index closed at a record, as investors considered corporate deals. The S&P 500 was little changed at 1.962.9 at 10:04 a.m. in New York.
Estimates in the Bloomberg survey ranged from 4.63 million to 4.9 million. The prior month’s pace was revised up from a previously reported 4.65 million.
The median price of an existing home rose 5.1 percent from May 2013 to reach $213,400, today’s report showed. The 12-month increase was the smallest since the year ended March 2012.
Compared with a year earlier, purchases decreased 8.2 percent before seasonal adjustment.
The number of previously owned homes on the market increased 6 percent from a year earlier to 2.28 million. At the current sales pace, it would take 5.6 months to sell those houses compared with5.7 months at the end of the prior month.
The month’s supply is consistent with a balanced market, Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released.
Existing home sales, tabulated when a purchase contract closes, account for more than 90 percent of the residential market. New-home purchases, which make up about 7 percent and are tabulated when contracts are signed, are considered a timelier barometer.
The housing recovery still has a ways to go. Existing-home sales had plunged to a 13-year low of 4.11 million in 2008, three years after a record 7.08 million houses were sold in 2005.
Borrowing costs, which climbed in the second half of 2013, have retreated recently. The average 30-year, fixed-rate mortgage was 4.17 percent in the week ended June 19, down from 4.41 percent at the beginning of April, according to data from Freddie Mac in McLean, Virginia. Overall, mortgage costs are still near historically low levels.
Residential construction is picking up this quarter after a weather-induced slump at the start of the year. Builders broke ground on homes at a 1 million annualized pace in May following 1.07 million in April, the best two-month reading since late 2013, a Commerce Department report showed this month.
Sentiment is also rebounding. The National Association of Home Builders/Wells Fargo confidence index climbed to 49 from 45 in May, the biggest gain since July 2013. The gauges for current sales, the outlook for future purchases and prospective buyer traffic all improved to the highest level since January.
Increasing property prices hurt affordability for prospective buyers trying to get into the market, at the same time they also help homeowners feel wealthier and may keep boosting profits for developers.
Hovnanian Enterprises, New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.
“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4.
Household formation will be the primary driver of long-term housing demand, he said and “the creation of well-paying jobs will go a long way” toward boosting the market. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said.
Some industry groups are growing concerned about the rebound. The Mortgage Bankers Association last week lowered its forecast for combined new and existing home sales in 2014 to 5.28 million -- a decline of 4.1 percent that would be the first annual drop in four years. The group also cut its prediction on mortgage lending volume for purchases.