Strong US housing data offers ray of hope for slowing economy
WASHINGTON: US home resales rebounded strongly in December from a 19-month low and prices surged, indicating the housing market recovery remained intact despite signs of a sharp deceleration in economic growth in recent months. The National Association of Realtors said on Friday existing home sales jumped a record 14.7 percent to an annual rate of 5.46 million units, after being temporarily held back by the introduction of new mortgage disclosure rules, which had caused delays in the closing of contracts in November.
Sales were also boosted by unseasonably warm weather and buyers rushing into the market in anticipation of higher mortgage rates. The Federal Reserve raised its benchmark overnight interest rate in December, the first rate hike in nearly a decade.
“We knew a significant number of closings were delayed by new regulations that came into effect in October. Overall, 2015 was a very good year and we’re positioned for a strong spring market,” said Stephen Phillips, president of Berkshire Hathaway Home Services in Chicago.
The mortgage disclosure rules are intended to help homebuyers understand their loan options and shop around for loans suited to their financial circumstances. Realtors said the rules had significantly increased contract closing time frames. November’s sales pace was unrevised at 4.76 million units. Economists had forecast home resales rebounding 8.9 percent to a 5.20-million rate in December. Sales rose 6.5 percent to 5.26 million units in 2015, the strongest since 2006.
Last month’s snap-back should offer some assurance that domestic demand remains fairly healthy, even as growth appears to have braked sharply at the end of 2015 because of a downturn in manufacturing and mining activity.
The dollar was trading higher against a basket of currencies, while prices for US government debt fell. The housing index .HGX rallied 2.04 percent, outperforming a broadly firmer US stock market. Shares in the nation’s largest homebuilder D.R. Horton Inc were up 2.59 percent and Lennar Corp advanced 2.16 percent.
While a separate report hinted at some stabilization for the downtrodden manufacturing sector, dollar strength and on-going efforts by businesses to reduce an inventory overhang suggest the sector’s troubles are far from over.
Data firm Markit said its Purchasing Managers Index bounced back in early January from December’s 38-month low as output and new business volumes increase at faster rates.
“We expect output and employment growth in the US manufacturing sector to remain tepid,” said Jesse Hurwitz, an economist at Barclays in New York.
Weak reports on retail sales, inventories, exports and industrial production have left economists estimating that gross domestic product increased at an annual rate of less than 1 percent in the fourth quarter after expanding at a 2 percent pace in the July-September quarter.
A stock market rout has also added to the gloom over the economy. In a third report, the Conference Board said its leading indicator slipped in December after a drop in building permits and persistently weak new factory orders.
Housing is being supported by a strengthening labor market, which has resulted in an acceleration in household formation. Sales, however, remain constrained by a dearth of homes available for sale, which is limiting choice for buyers. In December, the number of unsold homes on the market tumbled 12.3 percent from November to 1.79 million units, the lowest level since January 2013.
At December’s sales pace, it would take 3.9 months to clear the stock of houses on the market, the fewest since January 2005, and down from 5.1 months in November. A six-months supply is viewed as a healthy balance between supply and demand.
With inventories still tight, the median house price jumped 7.6 percent from a year ago to $224,100. House prices increased 6.7 percent in 2015. Although higher prices could sideline potential buyers, especially those wanting to purchase a home for the first time, they are boosting equity for homeowners, which could encourage them to put their homes on the market.
“The strong price increases will begin to impact affordability, but they are clearly needed to entice sellers to list their homes for sale,” said Kristin Reynolds, a US economist at IHS Global Insight in Lexington, Massachusetts.
Last month, the share of first-time buyers was 32 percent, up from 30 percent in November.