By Bob Willis
(Bloomberg) — Sales of existing U.S. homes rose more than forecast in November, to the highest level since February 2007, a sign housing is gaining strength along with the broader economy entering 2010.
Purchases increased 7.4 percent to a 6.54 million annual rate from a revised 6.09 million pace the prior month, the National Association of Realtors said today in Washington. The median sales price declined 4.3 percent from the same month a year earlier, the smallest decrease since November 2007.
Lower interest rates, cheaper homes and a homebuyer tax credit have resuscitated a housing market that contributed to the worst economic slump since the 1930s. A sustained recovery in housing and the economy depends on a resumption of payroll growth after employers cut 7.2 million jobs in the past two years.
"The tax credit had the intended impact of drawing buyers in and lowering inventory," Lawrence Yun, chief economist at the Realtors group, said in a press conference. "An estimated 2 million buyers have taken advantage of the credit."
Stocks extended gains and Treasury securities fell after the report. The Standard & Poor's 500 Index added 0.4 percent to 1,118.01 at 10:03 a.m. in New York. The 10-year Treasury note fell, pushing the yield up to 3.75 percent from 3.68 percent late yesterday.
The economy grew at a 2.2 percent annual rate in the third quarter, compared with a prior estimate of 2.8 percent, the Commerce Department said earlier today in Washington in its final revision to gross domestic product.
Home prices fell 1.9 percent in October from a year earlier, the Federal Housing Finance Agency in Washington said today in a separate report. The group's U.S. housing index is down 10.8 percent from the April 2007 peak.
Existing home sales were forecast to rise to a 6.25 million annual rate, according to the median forecast of 69 economists in a Bloomberg News survey. Estimates ranged from 5.2 million to 6.5 million, after an initially reported 6.1 million rate in October.
Previously owned home sales are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new home sales, recorded when a contract is signed, a more timely barometer of the market.
The Commerce Department may report on Dec. 23 that new home sales rose 1.7 percent in November to a 438,000 annual pace, according to the Bloomberg survey.
Existing home sales reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.
Purchases of existing homes rose 44 percent in November compared with a year earlier, the biggest increase on record. The median price fell to $172,600.
The number of previously owned unsold homes on the market fell 1.3 percent to 3.52 million. At the current sales pace, it would take 6.5 months to sell those houses compared with 7 months at the end of October. The ratio is the lowest since December 2006.
The share of homes sold as foreclosures or otherwise distressed properties was 33 percent, Yun said.
The report showed sales of existing single-family homes rose 8.5 percent to an annual rate of 5.77 million. Sales of condos and co-ops were unchanged at a 770,000 rate.
Purchases increased 10.6 percent in the West, 8.4 percent in the Midwest, 6.6 percent in the Northeast, and 4.8 percent in the South.
Federal Reserve debt purchases are helping keep mortgage rates close to record lows, while President Barack Obama's Nov. 7 extension and expansion of the tax credit through April may provide more impetus to sales and construction in coming months.
The Fed last week signaled it would keep lending rates low for "an extended period" to foster growth. The average rate on a 30-year fixed mortgage was 4.94 percent last week and has averaged 4.85 percent since the end of October, according to Freddie Mac.
"Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," Fed policy makers said in their statement last week after holding interest rates near zero.
Unemployment forecast to average 10 percent through 2010 remains a risk to the recovery in housing and the broader economy. Fed Chairman Ben S. Bernanke said Dec. 7 that the labor market and tight credit were limiting the economy.
Record foreclosures are also restraining housing by driving down prices. Foreclosure filings in the U.S. will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said on Dec. 10. This year's filings will surpass 3.2 million for all of 2008, the Irvine, California-based company said.
Toll Brothers Inc., the largest U.S. luxury-home builder, projected that deliveries may fall by as much as 33 percent in the 12 months through October 2010, and the average selling price may drop as low as $540,000.
"We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home ownership," Robert Toll, chief executive officer at Toll Brothers (TOL), said in a Dec. 3 statement. "We anticipate a gradual recovery in housing, similar to the one that occurred in the early 1990s."
To contact the report on this story: Bob Willis in Washington at email@example.com