Home sales probably increased in July to the highest level in more than three years as growing demand for residential real estate bolsters the expansion, economists said before reports this week.
Combined purchases of existing and new homes climbed to a 5.64 million annualized pace last month, the fastest clip since November 2009, according to the median forecasts of economists in a Bloomberg survey. Another report may show the world’s largest economy is poised to strengthen.
Improving sales, even as borrowing costs rise, and a limited supply of homes, lots and materials are helping boost home values and builder confidence. The waning effects of across-the-board federal spending cuts, combined with gains in the housing and auto markets, will probably help lift economic growth in the second half of the year.
“The economy is slowly improving,” said Roberto Perli, a Washington-based partner for Cornerstone Macro LP. “I look for the housing recovery to continue. The fundamentals of the market are strong enough to overcome higher mortgage rates.”
Sales of previously owned homes rose to a 5.15 million annualized pace last month from 5.08 million in June, according to the median forecast of 59 economists surveyed before the National Association of Realtors’ report on August 21.
Two days later, Commerce Department data will probably show purchases of new homes cooled to a 487,000 pace in July after reaching a five-year high 497,000 the month before, according to the median forecast in the Bloomberg survey.
Homebuilder confidence climbed in August to the highest level since November 2005 as supply constraints and rising prices help boost the outlook for builder revenue. Sales are expected to increase an average 37 percent among 10 U.S. homebuilders whose third quarters end Sept. 30, according to data compiled by Bloomberg Industries.
Rising home prices and an improved labor market have benefited builders including MDC Holdings Inc. (MDC:US), where new-home deliveries jumped 37 percent to 1,183 in the second quarter from the year before. Net new orders at the Denver-based homebuilder declined 3.6 percent to 1,351 as the company had fewer projects in the works than at the same point last year so it could focus on price increases.
“We believe that the impact of rising rates can be offset by the benefits of an improving economy, especially improvements in consumer confidence that stems from growth in employment and income levels,” Chief Executive Officer Larry Mizel said on a July 30 conference call.
That logic hasn’t stopped investors from showing their concern, with the Russell 3000 Homebuilding Index of 16 U.S. builders falling 21 percent since yields on the 10-year Treasury started rising May 3. That compares with a 2.6 percent gain in the Standard & Poor’s 500 Index.
A run-up in historically low interest rates is already showing signs of damping consumer confidence, figures from Thomson Reuters/University of Michigan showed last week. The group’s preliminary sentiment index for August fell to 80 from 85.1 in July, which was the highest level since July 2007.
There was an increase in the number of those surveyed who projected borrowing costs will rise over the next year, according to economists such as Daniel Silver at JPMorgan Chase & Co. in New York, who have access to the data. The index on home-buying conditions fell 8 points this month to the lowest level since February, Silver said in an Aug. 16 research note.
The average rate on a 30-year fixed mortgage was at 4.40 percent in the week ended August 15, compared with a record-low 3.31 percent reached in November, according to data from Freddie Mac.
A Commerce Department report last week showed housing starts climbed in July, paced by a rebound in construction of multifamily projects. Builder permits also rose, signaling construction will keep rising.
The gain in construction applications is one reason economists project a Conference Board report on Aug. 22 will show growth will accelerate. The index of leading economic indicators, a gauge of the outlook for the next three to six months, climbed 0.5 percent in July, the most in three months.
Minutes of the Federal Reserve’s July 30-31 meeting will be released on Aug. 21. Investors and analysts will be looking for clues on when central bankers plan to trim the $85 billion in monthly asset purchases. Officials will probably begin to reduce the central bank’s bond buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
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