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February 23, 2016 10:10 AM, EST
Sales of Existing US Homes Rise to Second-Highest Level Since 2007
Luke Sharrett/Bloomberg News

Sales of previously owned U.S. homes unexpectedly rose in January to the second-highest level since early 2007, indicating the industry will keep prospering.

Closings, which usually take place a month or two after a contract is signed, advanced 0.4% to a 5.47 million annual rate, the National Association of Realtors reported Feb. 23 in Washington. Prices climbed from January 2015 as the number of dwellings on the market fell.

Near record-low mortgage rates, steady job gains and better wage growth are helping encourage prospective buyers, including first-time purchasers. Further strengthening in residential real estate will support the economy and make up for weakness in manufacturing tied to weaker global growth.

“When people are confident about their job and income-earning prospects, they will borrow and they will buy,” David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, said before the report. “We expect home sales to continue to improve this year.”

The January sales pace was the second-strongest since February 2007. The median forecast of 78 economists surveyed by Bloomberg called for a 5.32 million annualized rate, with estimates ranging from 5.08 million to 5.55 million. December’s pace was revised to 5.45 million from an originally reported 5.46 million.

Compared with a year earlier, purchases increased 7.5% in January before adjusting for seasonal variations.

The data were volatile in the last two months of 2015 after a change in regulations aimed at consolidating the closing process. The introduction of new forms used by lenders and title companies led to delays in November signings that were subsequently made up in December.

Another report Feb. 23 showed home values in 20 U.S. cities steadied in the year ended December, putting residential real estate on healthier footing to contribute to the economic expansion.

The S&P/Case-Shiller index of property values increased 5.7% from December 2014, the same as in the year ended November, the group said. Nationally, prices climbed 5.4%.

The median price of an existing home rose 8.2% from January 2015 to $213,800. The appreciation was led by an 8.7% year-to-year advance in the Midwest and an 8.5% gain in the South.

Prices have been driven higher because of a lean supply of available houses. The number of previously owned homes for sale fell 2.2% from January 2015, to 1.82 million.

At the current sales pace, it would take 4 months to sell those houses, compared with 3.9 months at the end of the prior month. Less than a five months’ supply is considered a tight market, the Realtors group has said.

“It remains to be seen whether we get sufficient inventory increases or whether the market will be choked by a lack of supply,” Lawrence Yun, NAR’s chief economist, told reporters as the figures were released. “We can’t stimulate more housing demand, we need to stimulate housing supply. Prices are rising way too fast.”

Purchases were led by monthly gains of 4% in the Midwest and 2.7% Northeast, the Realtors’ data show. Sales dropped 4.1% in the West and were unchanged in the South.

Sales of existing single-family homes increased 1% to an annual rate of 4.86 million, the most since July. Purchases of multifamily properties — including condominiums and townhouses — fell 4.7% to a 610,000 pace.

Of all purchases, cash transactions accounted for about 26% in January, down from 27% a year earlier, the report showed.

First-time buyers accounted for 32% of all purchases, up from 28% in January 2015 and matching the December share that was the highest since July 2012, the NAR said.

Distressed sales, made up of foreclosures and short sales — in which the lender agrees to a transaction for less than the balance of the mortgage — accounted for 9% of the total. In January last year, the share was 11%.

The number of properties available has remained fairly lean and a Commerce Department report last week showing a drop in new construction starts offered little hope for an immediate rebound in construction.

Residential starts decreased 3.8% to a three-month low 1.1 million annualized rate.

Budding wage growth and unemployment at an eight-year low of 4.9% in January are conducive to more home sales. Hourly earnings rose more than estimated last month after climbing in the year to December by the most since July 2009.

Favorable borrowing rates continue to cushion home buyers who are able to meet credit standards. The average rate on a 30-year, fixed mortgage held at 3.65% in the week ended Feb. 18, the cheapest since April and close to the record-low 3.31% reached in 2012, according to Freddie Mac figures dating to 1971.

Existing home sales, which are tallied only when purchase contracts close, account for more than 90% of the residential market. A timelier barometer is new-home purchases, because they are tabulated earlier in the process, when deals are signed.

Economists project those sales fell to a 520,000 pace in January from 544,000 the prior month, according to the Bloomberg survey median ahead of a Feb. 24 report from the Commerce Department.