Sales of previously owned homes rose unexpectedly in August to the highest level since 2007 as potential buyers rushed to lock in deals before mortgage rates increased further.
But the industry’s trade group warned that home sales could slow in the coming months due to higher borrowing costs and prices.
Existing-home sales rose 1.7% in August from a month earlier to a seasonally adjusted annual rate of 5.48 million, the National Association of Realtors said Thursday. That was the best month of sales since February 2007, when home values were just beginning to decline from the housing bubble. The pace was 13.2% higher than the same period last year.
Mortgage rates are moving around and housing prices are rising. The perennial question of whether to rent or buy seems more complicated. Jed Kolko, chief economist at Trulia, joins the News Hub to weigh in on the question. Photo: AP
“This is partly due to the rise in interest rates, which again hurries some of the people into making the decision,” said Lawrence Yun, chief economist for the Realtors’ group. August is a lagging indicator of activity in June and July, when rates began their ascent, he said.
Economists had predicted sales would fall to a pace of 5.25 million in August. July’s figure was unrevised at a 5.39 million pace.
The figure “is especially encouraging as it suggests that the housing-market recovery is not showing any ill-effects from the recent surge in mortgage rates—at least not yet,” said Millan Mulraine of TD Securities.
Still, Mr. Yun warned the surging home-sales pace could be the “last hurrah” for the next 12 to 18 months as rising rates and home prices start to affect affordability and hold back buyers. Already, real-estate agents are seeing a decline in house tours, Mr. Yun said.
“We have seen some significant change in direction in August which may imply that in the upcoming months sales are likely to slow,” he said.
A strong housing market has buoyed the economic recovery by improving confidence among consumers, encouraging household spending and generating construction jobs.
Rising mortgage rates this summer have sparked a rush to buy homes as prospective homeowners want to lock in rates before they rise further. The average rate on a 30-year fixed-rate mortgage was 4.5% this week, Freddie Mac said Thursday. That level, while historically low, is well above spring levels of around 3.5%.
Rates have been increasing in recent months as speculation grew that the Federal Reserve would start winding down its $85-billion-a-month bond-buying program, which was designed in part to push down long-term interest rates. But Wednesday, the central bank said it would keep its program in place as it awaits more evidence that the economic recovery will be sustained.
Mr. Yun said the Realtors group didn’t take a stand on the Fed’s move Wednesday. “We are indifferent,” Mr. Yun said, adding that the group believes Fed officials should remain politically independent and “make their own judgment.”
Other reports have indicated a slower pace of sales of new homes as buyers adjust to higher rates. Contracts to buy new homes fell by 13.4% in July from June, and some builders and analysts have reported softness in new-home orders during August. The Commerce Department is set to report next Wednesday on sales of new homes in August.
If rising mortgage rates are accelerating purchases by some buyers that had been sitting on the fence, that could benefit existing homes over new homes because buyers can’t lock in a mortgage rate on a home that is under construction.
The industry group believes the main obstacle to higher sales isn’t mortgage rates, but rather tight credit standards that prevent many potential buyers from qualifying for loans, Mr. Yun said.
Other risks threatening a slowdown in the housing market are looming. A separate trade group for home builders said their confidence waned in September, though it remains at a nearly eight-year high. The survey by the National Association of Home Builders, released earlier this week, said builders are increasingly seeing hesitancy from potential buyers, largely due to rising mortgage rates.
Home prices are rising, likely as demand grows for the low stock of homes available for sale.
The Realtors group said Thursday that the median price of an existing home was $212,100, up 14.7% from a year earlier, its strongest gain since October 2005.
And inventories of previously owned homes remain tight. The number of homes available for sale in August rose 0.4% from July to 2.25 million. Still, the figure was down 6% from a year ago. The group expects inventories to tighten into the winter.
Home builders and economists, including Mr. Yun, say more homes are needed to meet increasing demand.
“There is an ongoing shortage of inventory on the market,” Mr. Yun said Thursday. “I don’t anticipate this housing shortage to go away,” adding that that could push up prices further.
On Wednesday, the Commerce Department said single-family new-home construction was up 7% in August from a month earlier and permits for new single-family homes, an indicator of future construction, rose to their highest level since May 2008.