U.S. Economy: Sales of Existing Homes Rise Most in Three Years
By Shobhana Chandra
March 23 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly surged last month by the most since March 2004, a sign that the housing market is probably past the worst of its yearlong slump.
Purchases increased 3.9 percent in February to an annual rate of 6.69 million, the National Association of Realtors said today in Washington. Sales were down 3.6 percent from the prior 12 months, the smallest decline in a year.
Stocks gained and bonds weakened as traders took the report as an endorsement of the Federal Reserve's projection that the economy will grow at a moderate pace. Figures this week have shown a jump in home construction and a rise in mortgage applications compared with a year ago.
``We expect the drag on the economy from housing will be gone by mid-year,'' said Dean Maki, chief U.S. economist at Barclays Capital in New York. The rebound in sales is ``an important development.''
Even with last month's sales gain, some economists noted that the supply of unsold properties continued to climb. Mounting defaults on subprime mortgages -- loans to people with patchy or poor credit histories -- may throw more properties onto the market and weaken prices.
``Most of the housing adjustment is completed,'' said Eric Green, chief market economist at Countrywide Securities in Calabasas, California. ``We're just not seeing the subprime problem in these numbers yet.''
Delinquencies
Countrywide Financial Corp., the largest U.S. mortgage lender, said this week that delinquencies on some subprime home loans may climb to 9.89 percent, exceeding a company record set in 2000. The firm is among lenders to tighten standards.
At the same time, lower prices and rising incomes are making homes more affordable, along with a decline in mortgage interest rates. The National Association of Realtor's affordability index rose to an almost two-year high in January, the group reported earlier this week.
Resales were forecast to drop 2.5 percent to a 6.3 million annual rate last month, according to the median of 63 forecasts in a Bloomberg News survey, from January's originally reported 6.46 million. Estimates ranged from 6.1 million to 6.51 million.
Last month's jump in sales partially reflects the closing of contracts signed in December, when unseasonably warm weather brought out more house hunters, David Lereah, the Realtors' chief economist, said at a briefing.
Lending Standards
More stringent lending standards, after a wave of defaults in the subprime market, will limit sales this year, said Lereah, who estimated ``we could be losing between 100,000 and 250,000 home sales'' annually over the next two years as a result.
``It will spill over into the overall housing sector, but will be somewhat contained,'' Lereah said. ``With the economy being healthy, this is a problem, not a crisis.''
Existing home sales averaged 6.51 million last year, lower than the 7.06 million average for all of 2005.
The median price of an existing home fell 1.3 percent last month from a year ago to $212,800, the Realtors group said.
The supply of homes for sale increased 5.9 percent to 3.748 million last month, representing a 6.7 months' supply at the current sales paces. That compares with 6.6 months at the end of January.
Resales of single-family homes rose 3.7 percent in February to an annual rate of 5.88 million, the report said. Sales of condos and co-ops rose 5.3 percent to an 810,000 rate.
Purchases increased in all regions of the country except the West, where they were unchanged. They rose 14.2 percent in the Northeast, 3.9 percent in the Midwest and 1.6 percent in the South.
Difference in Figures
Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier. New home sales, which are recorded when a contract is signed, are a more timely barometer of the housing market than home resales. The Commerce Department may report next week that new home sales rose to an annual rate of 985,000 last month from 937,000, according to the median forecast in a Bloomberg survey.
Resales account for about 85 percent of the housing market.
Builders broke ground on new homes at an annual rate of 1.525 million last month, rebounding from a nine-year low in January, the Commerce Department said this week.
That report helped ease concern that increasing defaults by subprime borrowers are hurting the housing recovery.
