Bloomberg News

Sales of Existing U.S. Homes End 2011 on High Note: Economy

January 23, 2012

(Updates with closing markets in fifth paragraph.)

Jan. 20 (Bloomberg) -- Sales of previously owned U.S. homes rose in December to the highest level since January 2011, adding to evidence residential real estate was stabilizing heading into the new year.

Purchases increased for a third month, climbing 5 percent to a 4.61 million annual rate, the National Association of Realtors said today in Washington. The gain helped push the number of houses on the market to a six-year low.

Less-expensive properties, a pickup in employment and the lowest mortgage rates on record may give Americans the confidence to take on their biggest investment, buying a house. At the same time, the foreclosure crisis continues to threaten parts of the country, which will probably inhibit more broad- based gains in the industry that triggered the recession.

“It’s going to be a slow process, but we are finally starting to see signs that an adjustment is occurring in housing,” said Troy Davig, a senior U.S. economist at Barclays Capital Inc. in New York. “You’re going to have some markets where foreclosures were less of an issue and those markets are going to do quite well.”

Most stocks rose, erasing a loss for the Standard & Poor’s 500 Index in the final minutes of trading, as banks gained and results from International Business Machines Corp. to Intel Corp. boosted technology shares. The S&P 500 climbed 0.1 percent to 1.315.38 at the close in New York.

In Europe today, U.K. retail sales rose 0.6 percent in December after falling 0.5 percent the prior month, the Office for National Statistics said in London. Price cuts helped demand for clothes and computers as well as sales at department stores. The annual price deflator, a measure of price increases, fell to a 16-month low of 2.4 percent.

China Manufacturing

Elsewhere, data out of China signaled manufacturing may contract for a third month. A preliminary January purchasing managers’ index was 48.8 compared with a final reading of 48.7 for December, HSBC Holdings Plc and Markit Economics said today. The dividing line between contraction and expansion is 50.

The median forecast of 75 economists surveyed by Bloomberg News projected sales of U.S. existing homes would rise to a 4.65 million annual rate in December. Estimates ranged from 4 million to 5 million. The real-estate agents’ group revised the November reading down to a 4.39 million rate from a previously reported 4.42 million pace.

Milder weather may have helped bring out homebuyers. The average temperature was 35 degrees Fahrenheit (2 degrees Celsius) in December, 1.7 degrees above the month’s average from 1901-2000, according to the National Climatic Data Center.

Inventories Drop

The number of properties on the market dropped 9.2 percent to 2.38 million, the fewest since March 2005. At the current sales pace, it would take 6.2 months to sell those houses, down from 7.2 months at the end of November. A range of seven months to eight months supply is consistent with stable home prices, the group has said.

A drop in foreclosures may be helping reduce the glut of houses up for sale. Foreclosure filings fell 14 percent in November from the same month in 2010, partly the result of a holiday-eviction moratorium by mortgage giants Fannie Mae and Freddie Mac, according to a report last month by RealtyTrac Inc.

The market must digest more than 14 million distressed properties -- 1.5 million homes in the foreclosure process, 3.5 million with delinquent mortgages and at least 10 million “underwater” properties, whose owners owe more than the homes are worth -- before the foreclosure crisis will subside, according to Irvine, California-based RealtyTrac.

The threat is more regional than general, said Barclays’ Davig, indicating the market may be able to overcome the challenge as the employment grows.

Foreclosure States

“We still have four high foreclosures states -- Arizona, Florida, Nevada, California -- that have a huge glut of inventories,” Davig said. “Inventories are doing a better job of adjusting in other parts of the country,” he said.

Existing-home sales, tabulated when a contract closes, rose 1.4 percent from the same month last year, today’s report showed. A total of 4.26 million previously owned houses were sold in 2011, up from 4.19 million the prior year. Demand peaked at 7.1 million in 2005 during the housing boom. In 2008, sales totaled 4.1 million, the least since 1995.

The median price of a previously-owned home declined 2.5 percent to $164,500 from $168,800 in December 2010, today’s report showed.

“December was a nice finish to a tough year,” Lawrence Yun, the group’s chief economist, said in a news conference today as the figures were released. “If that can be sustained, we are talking about a genuine recovery in 2012.”

Single-Family

Sales of existing single-family homes increased 4.6 percent to an annual rate of 4.11 million. Purchases of multifamily properties, including condominiums and townhouses, climbed 8.7 percent to a 500,000 pace.

Purchases rose in all four regions, led by an 11 percent gain in the Northeast and an 8.3 percent increase in the Midwest.

Homebuilders are growing more optimistic the housing market is recovering. The National Association of Home Builders/Wells Fargo sentiment index rose this month to the highest level since June 2007 as sales and buyer traffic improved.

The economy added 200,000 jobs in December and the unemployment rate declined to an almost three-year low of 8.5 percent, Labor Department figures showed earlier this month. Meantime, mortgage rates have fallen to a record-low 3.88 percent as of Jan. 19, according to data by Freddie Mac.

‘Value Proposition’

“Consumers are beginning to realize that housing represents an undeniable value proposition, and accordingly demand is growing,” Stuart Miller, chief executive officer at Miami-based Lennar Corp., said on a Jan. 11 conference call. “As I look ahead to 2012, I’m cautiously optimistic that we’re seeing a real bottom form and that we will begin to see signs of recovery.”

Nonetheless, Federal Reserve officials are concerned about the outlook for housing. “Weak demand to purchase homes and the restricted supply of mortgages has put considerable downward pressure on house prices in many areas,” they said in a Jan. 5 report delivered to Congress.

Streamlining the refinancing process, easing borrowing requirements to allow investors to buy single-family properties in bulk and modifying existing loans were among measures the central bank’s report proposed to assist the housing market.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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