March 25, 2023

U.S. Existing Home Sales Rise to 6-1/2 Year High

The National Association of Realtors said on Thursday existing home sales increased 1.7 percent to an annual rate of 5.48 million units last month, the highest level since February 2007 when property values began to decline after the sector’s boom and bust.

Economists polled by Reuters had expected home resales to rise to a 5.25 million-unit rate. The housing recovery has helped shore up the economy by bolstering household finances and supporting consumer spending.

Lawrence Yun, NAR chief economist, said the housing market may be experiencing a temporary peak as would-be buyers sitting on the fence are pushed to close deals ahead of likely price and borrowing cost increases.

“Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions,” he said, pointing to tight inventory limiting choices in many real estate pockets.

Mortgage rates have risen in recent months after hitting a low of 3.35 percent in May, according to data from Freddie Mac. The rate for a 30-year fixed rate loan was at 4.5 percent as of September 19, hovering near a two-year high.

The Federal Reserve cited tighter financial conditions as one reason for its decision this week not to taper its stimulus program aimed at supporting growth, a surprise to investors and economists who had expected it to scale back bond-buying. Slower asset purchases would have pushed mortgage rates even higher.

Last month, the inventory of unsold homes on the market increased slightly and represented 4.9 months’ supply at August’s sales pace, the NAR said.

“There’s an ongoing housing shortage,” Yun said, adding: “I don’t anticipate this housing shortage to go away.”

The months’ supply remained below the 6.0 months that is normally considered as a healthy balance between supply and demand. The U.S. housing market had been impacted by tight supplies in some parts of the country.

The median home sales price in August rose 14.7 percent from a year ago to $212,100.

Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for about 12 percent of overall sales last month, the lowest since NAR began tracking the data in 2008.

Investors bought 17 percent of homes in August, with first-time buyers accounting for 28 percent of the transactions.

Rising home values and mortgage interest rates have started to price some first-time buyers out of the housing market and affect affordability.

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In Surprise, Fed Decides Not to Curtail Stimulus Effort

As Congressional Republicans and the White House hurtle toward another showdown over federal spending, the Fed said it was concerned that fiscal policy once again “is restraining economic growth,” threatening to undermine what the Fed had described just months ago as a recovery gaining strength.

Stock markets jumped after the 2 p.m. announcement, with the Standard Poor’s 500-stock index touching a record high and the Dow Jones industrial average ahead more than 150 points.

The Fed’s decision also may reflect the consequences of yet another premature retreat from its own policies. Mortgage rates have climbed and other financial conditions have tightened since the Fed signaled in June that it intended to reduce its asset purchases by the end of the year, the Fed noted Wednesday.

“The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and the labor market,” it said in a statement released after a regular two-day meeting of its policy-making committee.

The decision, an apparent victory for the Fed’s chairman, Ben S. Bernanke, and his allies who have argued for the benefits of asset purchases, was supported by all but one member of the Federal Open Market Committee. Esther George, president of the Federal Reserve Bank of Kansas City, dissented as she has at each previous meeting this year, citing concerns about inflation and financial stability.

The Fed may still begin to reduce asset purchases by the end of the year, consistent with its previous statements. The Fed also refrained from any change in its stated intention to hold short-term interest rates near zero at least as long as the unemployment rate remains above 6.5 percent.

The statement said the committee sees recent economic data “as consistent with growing underlying strength in the broader economy.” However, the statement continued, “The committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

In their economic forecasts, also published Wednesday, Fed officials once again retreated from overly optimistic predictions about the pace of growth over the next several years.

The aggregation of forecasts by the 17 officials who participate in policy-making showed that Fed officials expect growth to remain sluggish for years to come, with persistent unemployment and little inflation, suggesting that the dismantling of the Fed’s stimulus campaign will remain slow and cautious.

The middle of the forecast range for economic growth this year was 2 percent to 2.3 percent, down from June predictions of growth between 2.3 percent and 2.6 percent. For 2013, Fed officials forecast growth between 2.9 percent and 3.1 percent, down from a range of 3 percent to 3.5 percent in June.

The Fed unrolled an aggressive combination of new policies last year in an effort to increase the pace of job creation. It started adding $85 billion a month to its holdings of Treasuries and mortgage bonds, and said it planned to keep buying until the outlook for the labor market improved substantially. The Fed also said that it would keep short-term rates near zero for even longer – at least as long as the unemployment rate remained above 6.5 percent.

Half a year later, in June, Mr. Bernanke, surprised many investors by announcing that the Fed intended to cut back on those asset purchases by the end of the year, an intention the Fed affirmed in July.

Critics had warned that the Fed would be pulling back too soon if it acted Wednesday. Economic growth remains sluggish and job creation is barely outpacing population growth. Roughly half the decline in the unemployment rate over the last year is because fewer people are looking for work, not because more are finding jobs.

Jack Ewing contributed reporting from Frankfurt.

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Contracts to Purchase Homes Dropped Slightly in July

WASHINGTON — Fewer people signed contracts to buy American homes in July, but the level stayed close to a six-and-a-half-year high. The modest decline suggests that higher mortgage rates have yet to slow sales sharply.

The National Association of Realtors said its seasonally adjusted index for pending home sales declined 1.3 percent, to 109.5 in July. That is close to May’s reading of 111.3, which was the highest since December 2006.

The small decline suggests that sales of previously owned homes should remain healthy in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.

Final sales jumped to an annual pace of 5.4 million in July, the highest in three and a half years, the group said last week. Such a pace is consistent with a healthy housing market.

Higher mortgage rates appeared to have had a bigger impact on new-home sales, which plummeted last month. That raised fears that rate increases were restraining the housing recovery.

But many economists note that home prices and mortgage rates remain low by historical standards. Consistent job gains and rising consumer confidence may also support sales in the coming months.

“Higher mortgage rates are clearly negative for housing, but other key drivers — including the labor market, confidence and expectations for prices and interest rates — still point to improvement,” Jim O’Sullivan, chief United States economist at High Frequency Economics, said in a note to clients.

The average rate on a 30-year mortgage reached 4.58 percent last week, the highest level in two years and up from 3.35 percent in early May. Still, that is below the average since 1985 of about 7 percent, according to

Mortgage rates began to rise after the Federal Reserve chairman, Ben S. Bernanke, signaled that the Fed might reduce its bond purchases later this year. The purchases have helped keep borrowing costs low.

Rising home prices and more construction have bolstered economic growth and created more jobs. The housing recovery has provided crucial support to the economy when other drivers, like manufacturing, have struggled.

Gains in home prices may be starting to level off, however. Prices jumped 12.1 percent in June from a year earlier, according to the Standard Poor’s/Case-Shiller home price index released on Tuesday. That is slightly slower than May’s 12.2 percent year-over-year gain. But price increases slowed in June from May in 14 of the 20 cities tracked by the index.

The stabilization in prices is not necessarily a bad thing, economists said, because it could keep homes affordable and help prevent a bubble from developing in the housing market.

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Rising Rates Did Little to Curb July Home Sales

The National Association of Realtors said on Wednesday that existing-home sales rose 6.5 percent to a seasonally adjusted annual rate of 5.39 million units.

The increase in home sales exceeded Wall Street’s expectations and could make the Federal Reserve more comfortable with its plans to start winding down its economic stimulus program. Mortgage rates have been climbing in anticipation that the Fed will soon taper its stimulus.

While some of July’s surge in home resales may reflect buyers rushing to lock in mortgage rates before they rise further, the data inspired some confidence that the housing recovery was strong enough to withstand higher borrowing costs.

“The basic take-away is that the rise in mortgage rates has been manageable,” said Ryan Sweet, an economist with Moody’s Analytics.

After being devastated by a financial crisis and the 2007-9 recession, the home market appeared to turn a corner early last year, helped by steady job creation and extremely low interest rates.

July’s increase was the fastest pace of sales since November 2009, when a home buyer tax credit was expiring. Such a strong rate of growth could prove temporary, however.

Applications for mortgages to buy homes rose slightly last week, but they have fallen sharply since the spring and remain near a seven-month low, a separate report from the Mortgage Bankers Association showed.

“We expect to see some moderation in activity in the coming months, as higher mortgage rates take some of the air from the recovery,” said Millan Mulraine, an economist at TD Securities.

Since early May, interest rates for 30-year mortgages have risen more than a percentage point. Last week, the average rate for a 30-year mortgage climbed 12 basis points, or hundredths of a percent, to 4.68 percent while refinancing activity slumped, the Mortgage Banker Association said.

The Fed is currently buying $85 billion a month in Treasury and mortgage-backed bonds, but it is expected to scale back purchases as early as September.

Economists polled by Reuters had expected home resales to increase to an annual rate of 5.15 million units in July.

The median price for a previously owned home rose 13.7 percent in July from a year earlier to $213,500. The inventory of unsold homes on the market rose 5.6 percent, for an unchanged 5.1-month supply.

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Bond Purchases by Fed Will Continue, at Least for Another Month

As expected, the Fed’s policy-making committee voted to press ahead for now with its campaign to increase job creation. And its statement said nothing about how much longer it would continue to add $85 billion a month to its holdings of mortgage-backed securities and Treasury securities. But the Fed left its economic outlook basically unchanged, suggesting that the central bank still intended to reduce the volume of its purchases later this year.

The statement, issued after a regular two-day meeting of the Federal Open Market Committee, acknowledged the weak pace of growth during the first half of the year, which it described as “modest” rather than “moderate” — the words are synonymous in English but distinct in the Fed’s carefully calibrated lexicon, suggesting an even more lackluster economic performance. But it maintained the Fed’s forecast that “economic growth will pick up from its recent pace” in the coming months, driving job creation.

The statement also repeated language first introduced after the Fed’s previous meeting, in June, that “the committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall,” when the Fed began this latest push aimed at increasing the pace of growth.

Analysts said they expected the committee to cut back at its next meeting in mid-September. Dean Maki, chief United States economist at Barclays Capital, said the statement was “on the dovish side” because of its references to slower growth, rising mortgage rates and low inflation. Nonetheless, he added, “We continue to expect the F.O.M.C. to taper the asset purchase program in September, provided that the next two employment reports are reasonably strong.”

The committee had little time to grapple with the implications of the latest economic data. The government announced earlier Wednesday that the economy expanded at an annual rate of 1.7 percent in the second quarter, better than economists had expected but below the pace that Fed officials regard as necessary to create enough jobs to bring down the unemployment rate.

The Fed repeated its stark assessment that “fiscal policy is restraining economic growth.” It also noted that “mortgage rates have risen somewhat,” a new check on the economy that is at least partly of the Fed’s own creation.

The average interest rate on a 30-year fixed-rate mortgage rose to 4.37 percent in July from 3.54 percent in May, according to a survey conducted by Freddie Mac. But that increase is only partly the result of investor uneasiness about the Fed’s plans; it also reflects an improved economic outlook. And that improved outlook, in turn, is mitigating the impact of the rate increases.

David Hall, president of Shore Mortgage in Troy, Mich., said that the higher rates had cut into demand for refinancing, but that demand for mortgages to buy a home remained strong. “People understand the historical context, that these are still really low rates, and coupled with all the news about home values rising, there’s still a lot of excitement about buying,” he said. “That excitement has overshadowed the rate increases a little bit.”

The Fed has also become more concerned about the sluggish pace of inflation. Prices rose at an annual pace of just 0.8 percent in the second quarter, according to the Fed’s preferred measuring stick, a measure of inflation compiled by the Bureau of Economic Analysis — well below the 2 percent annual pace that the Fed considers healthy. Low inflation can cause problems, although Mr. Bernanke recently noted that the reasons were “hard to explain to your uncle.” The primary cause for concern is the risk that prices will begin to fall, which can plunge the economy into a debilitating cycle of deflation as prospective buyers wait for prices to fall even further.

James Bullard, president of the Federal Reserve Bank of St. Louis, chided his fellow officials for underplaying this risk at the committee’s June meeting. This time the Fed noted the risk in the statement but maintained its official view that the pace of price increases was likely to rise.

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Pace of Home Building Rose at Vigorous Clip in February

The Commerce Department said on Tuesday that builders broke ground on houses and apartments last month at a seasonally adjusted annual rate of 917,000. That rate was 910,000 in January. February’s pace was the second-fastest since June 2008, behind December’s rate of 982,000.

Single-family home construction increased to an annual rate of 618,000, the most in four and half years. Apartment construction also ticked up, to 285,000.

The gains are likely to grow even faster in the coming months. Building permits, a sign of future construction, increased 4.6 percent to 946,000. That was also the most since June 2008, just a few months into the recession.

The figures for January and December were also revised upward. Housing starts have risen 28 percent over the last 12 months.

Separately, a private report showed that the number of Americans with equity in their homes increased last year. That suggested that one of the biggest drags from the housing crisis was easing, and it could clear the way for more people to put homes on the market.

“The road ahead for housing is still, so far, looking promising,” Jennifer Lee, an economist at BMO Capital Markets, said in a note to clients.

The housing market is recovering after stagnating for roughly five years. Steady job gains and near-record-low mortgage rates have encouraged more people to buy.

Still, the supply of available homes for sale remained low. That has helped push up home prices. They rose nearly 10 percent in January compared with 12 months earlier, according to CoreLogic, a research firm, the biggest increase in nearly seven years.

Higher prices mean more Americans have equity in their homes. Last year, about 1.7 million Americans went from owing more on their mortgages than their homes were worth to having some ownership stake, CoreLogic reported on Tuesday. Still, 10.4 million households, or 21.5 percent of those with a mortgage, remain “under water,” or owe more on their home than it is worth.

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Mortgages: When the Seller Is the Lender

But such transactions remain rare, according to market participants, largely because of eroding home equity.

In seller financing, the owner of a property holds the mortgage for the buyer, usually for about five years, with a balloon payment after that. For individuals who don’t need all the cash from a sale up front, the arrangement provides interest income, can delay or reduce capital-gains taxes, and gets a property off their hands.

For the buyer without a bank loan, it makes a purchase possible. Such deals were popular in the 1980s when mortgage rates topped 17 percent. (In New York, there have been recent instances of developers’ offering financing, especially in newer condominiums, but that’s a different market dynamic.)

Because a seller who acts as a bank has to be able to clear his own mortgage without the buyer’s cash, he needs equity — that is, he needs to own most or all of the property. Falling home prices in recent years have cut equity dramatically, said Mike Litzner, the owner/broker of Century 21 American Homes, which has 12 offices on Long Island. In this market, “the average seller lost 25 percent of equity from the peak of the market to today,” he said. “That loss of equity makes it harder for the average person to even consider financing.”

Century 21 recently released a survey of its franchisees and salespeople nationally; it found that 89 percent reported some customers’ having difficulty obtaining loans in the last six months.

Seller-financed deals do sometimes pop up, said Neil B. Garfinkel, a Manhattan real estate lawyer. His firm is handling a co-op purchase for a buyer whose mortgage from an institutional lender fell through. There was a quirk in the building’s finances that meant it didn’t meet underwriting standards. The seller stepped in, and it appears the deal will close.

That situation, he said, underlines a question that both buyers and sellers should ask as they consider owner financing: Why won’t the bank put up the money?

For the buyer, that may mean weighing whether the discovery of an environmental problem cools ardor for a house, or whether a low appraisal signals that an offer merits renegotiation.

For a seller who is in a position to provide financing, the biggest concern is whether the buyer is truly creditworthy. “Presumably the seller does not want to end up with the property back,” Mr. Garfinkel said.

Keep in mind that although such a transaction might seem less formal than bank financing, it shouldn’t be treated that way, said Ilona Bray, a lawyer and the co-author of “Selling Your House in a Tough Market,” published by

“Get ready to really delve in and investigate” the buyer’s finances, she advises would-be sellers. Self-employed people are having a tough time getting mortgages now, even though they might otherwise be good risks. The seller should ask for several years of financial records, plus explanations for any less-than-perfect credit report.

Make sure deeds and other legal papers are filed according to local laws, Ms. Bray said, and ensure that documents lay out exactly how and when payments are due and what the penalties will be for late payments. “This is the kind of relationship where people could feel it’s casual,” she said. It’s not, and everyone involved must understand that defaults can lead to foreclosure.

From the buyer’s perspective, she said, if you’re considering such a deal, it’s probably because you realize you might have trouble securing a conventional loan. If that’s so, get your financial documents in order, and be prepared to ask sellers if they have flexibility. “Everything’s open to negotiation in the real estate world,” she added.

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