Sales of Existing US Homes Rose More Than Forecast in May – Businessweek

Purchases of previously owned U.S.
homes rose in May by the most in almost three years, a sign the
industry is stabilizing after a weather-depressed quarter.

Sales (ETSLTOTL) climbed 4.9 percent, the biggest gain since August
2011, to a 4.89 million annualized rate, figures from the
National Association of Realtors showed today in Washington. The
level was the strongest since October and exceeded the median
forecast of economists in a Bloomberg survey. 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:US)
are optimistic the recovery remains on track.

“I’m confident that the housing recovery is going to
continue,” said Tom Simons, an economist at Jefferies LLC in
New York, who projected sales would rise to a 4.8 million pace.
“Income levels are going up, rates are at least not going up
anymore, and prices are stabilizing, so all that blends into a
good picture for affordability.”

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.

The median forecast of 70 economists surveyed by Bloomberg
projected a gain to a 4.74 million rate. Estimates ranged from
4.63 million to 4.9 million. The prior month’s pace was revised
to 4.66 million from a previously reported 4.65 million.

Prices Moderate

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, the
most since August 2012. 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.

First-time buyers accounted for 27 percent of all purchases
and are still having trouble getting into the market, Yun said.

Less Distress

Distressed sales, comprised of foreclosures and short
sales, in which the lender agrees to a transaction for less than
the balance of the mortgage, accounted for 11 percent of the
total, the fewest since records began in October 2008.

The slump in sales that began about a year ago when mortgage
rates shot up “is pretty effectively over,” Yun said at the
news conference. Given the gains in employment, it is “hard to
foresee how sales could slide back now.” Yun projected sales
will soon top the 5 million pace and stay around those levels
for the rest of the year.

He projected for all of 2014 sales will total 4.93 million,
down from 5.09 last year. The drop reflects the slump at the
beginning of the year, he said.

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.

Mortgage Rates

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.

Prices, Affordability

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.

To contact the reporters on this story:
Shobhana Chandra in Washington at
schandra1@bloomberg.net

To contact the editor responsible for this story:
Carlos Torres at ctorres2@bloomberg.net

Sales of Existing US Homes Rose More Than Forecast in May – Businessweek

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