Rise in U.S. home sales reflects steady improvement
WASHINGTON -- The recovery of the U.S. housing market is looking steadier and more sustainable, a trend that will likely add to economic growth in 2012 for the first time in seven years.
Purchases, construction and prices are gradually but consistently increasing, though they remain far below levels seen in a healthy economy.
Sales of previously occupied homes rose 2.3 percent in July from June to a seasonally adjusted annual rate of 4.47 million, the National Association of Realtors said Wednesday. Over the past 12 months, sales have jumped more than 10 percent.
New-home sales have been strengthening, too. Toll Brothers, a builder of high-end homes, said Wednesday that it's enjoying its most sustained demand in more than five years.
The "evidence that the housing market is recovering ... is fairly clear across a wide range of reports," said John Ryding, an economist at RDQ Economics, a forecasting firm. Housing "is now becoming a small positive for the economic outlook."
That's a big change for an industry that has been a major drag on the economy since the housing bubble burst more than five years ago. Michelle Meyer, an economist at Bank of America Merrill Lynch, forecasts that home construction will add 0.2 percentage points to growth this year. That would make 2012 the first full calendar year in which housing has added to growth since 2005.
Other recent reports add to the picture of an improving housing market, though one that's recovering at a painfully slow and uneven pace.
Home prices are rising nationwide. They increased 2.2 percent from April to May, according to one leading index. That was the second straight increase after seven months of flat or declining prices.
The median U.S. home price rose 9.4 percent in July compared with a year earlier to $187,300, the Realtors' group said. That was the biggest annual gain in 6 1/2 years. One reason for the increase is that foreclosed homes, which usually sell at steep discounts, are making up a smaller proportion of sales than they did a year ago.
Builders, meanwhile, are growing more confident because they're seeing more traffic from potential buyers. An index of builder confidence rose to its highest level in five years in August.
Builders responded by applying for the largest number of building permits in nearly four years last month. They broke ground on slightly fewer new homes in July than in June. But that was after the number of housing starts had reached a 3 1/2-year high in June.
In May, sales of new homes reached a two-year high, then declined in June. Economists are forecasting that sales rebounded slightly last month. The figures for July will be released today.
Still, the housing market has a long way to go to reach a full recovery. Some economists forecast that sales of previously occupied homes will rise 8 percent this year to about 4.6 million. That's still well below the 5.5 million annual sales pace that is considered healthy.
But the trend remains positive. Modest economic growth and job gains are encouraging more Americans to buy homes. And homes are more affordable: Prices remain about one-third lower than they were at the peak of the housing bubble in 2006.
And home loan rates are near record lows: The average on a 30-year fixed-rate loan was 3.62 percent last week, mortgage buyer Freddie Mac said. Three weeks earlier, the rate was 3.49 percent, the lowest since long-term mortgages began in the 1950s.
Rising demand for luxury homes is contributing to higher sales. Recent stock market gains have added to wealthier Americans' spending power.
Sales of homes that cost $1 million or more rose 18.6 percent in July, the Realtors' group said. In July 2011, sales in that range had barely increased.
Toll Brothers' net income jumped 46 percent in the May-July quarter, the company said Wednesday.
"We are enjoying the most sustained demand we've experienced in over five years," CEO Douglas Yearley said.
The number of first-time homebuyers, critical to a housing rebound, rose to 34 percent of sales, up slightly from June. In a healthy market, first-time buyers make up about 40 percent of sales.
Purchases are being restrained by low levels of homes available for sale and tight credit standards, economists said. Many would-be buyers are having trouble qualifying for loans or can't afford larger down payments being required by banks. A Federal Reserve report last month showed that many banks tightened their mortgage credit standards this summer.
There were 2.4 million homes for sale in July, down 24 percent in the past year. That's helping to push up prices. It would take about 6.4 months to exhaust that supply at the current sales pace. That's just above the six months' inventory that typically exists in a healthy economy.
Hiring picked up a bit in July, which could support more home sales in the coming months. Job growth helps consumers feel more secure about their finances and typically encourages more of them to buy a house.
Employers added 163,000 jobs last month, the most since February. Job gains had averaged only 73,000 in the April-June quarters, raising fears that the economy was faltering and might even slip into recession.