Existing US home sales soar to 10-year peak in a sign of economic strength
US home resales surged to a 10-year high in January as buyers shrugged of higher prices and mortgage rates, a sign of growing confidence in the economy.
The National Association of Realtors said on Wednesday existing home sales jumped 3.3 per cent to a seasonally adjusted annual rate of 5.69 million units last month. That was the highest level since February 2007.
December’s sales pace was revised up to 5.51 million units from the previously reported 5.49 million units. Economists had forecast sales rising 1.1 per cent to a pace of 5.54 million units in January. The NAR also revised sales data going back to 2014. The revisions were minor and had no impact on the characterization of the housing market.
Prices for US government debt slipped after the data, while the dollar was little changed against a basket of currencies. The PHLX housing index rose 0.6 per cent, outperforming the broader US stock market.
Home resales were up 3.8 per cent from January 2016. Demand for housing is being underpinned by a strengthening labour market, which is improving employment opportunities for young adults and, in turn, boosting household formation.
A persistent shortage of properties available for sale, which is lifting house prices, remains an obstacle to a robust housing market. While the 30-year fixed mortgage rate appears to be stabilising after rising rapidly in recent months, it still remains above 4 per cent. In contrast, annual wage growth is running below 3 per cent.
Economists expect home sales to slow this year.
The number of homes on the market rose 2.4 per cent to 1.69 million units in January. The housing inventory, however, was down 7.1 per cent from a year ago and has now declined for 20 straight months on a year-on-year basis.
Economists say homebuilders are struggling to plug the inventory gap because of difficulties securing funding as well as shortages of land and labour. The NAR estimates housing starts and completions should be in a range of 1.5 million to 1.6 million units to alleviate the chronic shortage.
Housing starts are running above a rate of 1.2 million units and completions around a pace of 1 million units.
With fewer homes available for sale, house prices maintained their ascent last month. The median house price increased 7.1 per cent from a year ago to US$228,900 in January. That was the biggest increase since January 2016.
Last month, existing home sales rose in the Northeast, the West and South. They fell 1.5 per cent in the Midwest. At January’s sales pace, it would take 3.6 months to clear the stock of houses on the market. That was unchanged from December.
A six-month supply is viewed as a healthy balance between supply and demand. The tight supply meant that house prices recorded their 59th consecutive month of year-on-year gains in January.
The higher prices are increasing equity for homeowners and might encourage some to put their homes on the market, but could help to sideline first-time buyers from the market.
First-time buyers accounted for 33 per cent of transactions last month, well below the 40 per cent share that economists and realtors say is needed for a robust housing market. That was up from 32 per cent in December and a year ago.