Home sales take a breather, but prices hit five-year high
WASHINGTON (Reuters) - U.S. home resales unexpectedly fell in June after two straight months of hefty increases, but a surge in prices to a five-year high suggested the housing market recovery remained on course.
The National Association of Realtors said on Monday home sales fell 1.2 percent to an annual rate of 5.08 million units. Still, the sales pace was the second highest for any month since November 2009.
While the NAR suggested that a spike in mortgage rates had contributed to dampening sales last month, economists were skeptical, noting that the resales mostly reflected contracts signed in May.
"The rise in mortgage rates is a headwind, but it's probably not enough to derail the home sales recovery. The fundamentals in the market are still very good," said Guy Berger, an economist at RBS in Stamford, Connecticut.
Economists polled by Reuters had expected sales to increase to a 5.25 million unit pace in June. Sales, which were up 15.2 percent from their year-ago level, fell in three regions and were flat in the Midwest compared with May.
Mortgage rates have been rising in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year.
According to Freddie Mac, the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, its highest level since October 2011. Still, mortgage rates remain low and Fed Chairman Ben Bernanke last week expressed optimism the housing market recovery would continue.
The recovery, marked by a surge in prices and dwindling inventories, is helping to shore up the economy by bolstering household finances and supporting consumer spending.
Financial markets largely shrugged off the report.
Even though sales pulled back last month, there was little in the home data to suggest an unraveling of the recovery.
The median price for a previously owned home soared 13.5 percent from a year ago to $214,200, the highest since June 2008. The inventory of unsold homes on the market rose 1.9 percent from May, pushing the months' supply to 5.2.
While that was up from May's 5.0 months, it remained below the 6.0 months that is normally considered as a healthy balance between supply and demand. Economists say tight supply has weighed on sales.
Other details of the report were also encouraging. Distressed properties - which can depress prices because they typically sell at deep discounts - accounted for only 15 percent of sales last month.
That was the lowest since the Realtors group started monitoring them in October 2008. These properties, foreclosures and short sales, had made up 18 percent of sales in May.
In another sign of underlying strength, properties are selling more quickly. A home's median time on the market in June was 37 days. That was down from 41 days in May and 70 days a year ago, and it was the fewest days since the NAR started monitoring that number in May 2011. Before the market collapsed in 2006, it usually took about 90 days to sell a home.
About 47 percent of all homes sold in June had been on the market for less than a month.
"The underlying fundamentals are indicative of a continuation of the broad-based housing market recovery as affordability remains near record levels and mortgage rates remain low from a historical perspective," said Gennadiy Goldberg, an economist at TD Securities in New York.
But there were some potential red flags in the report.
First-time buyers accounted for 29 percent of the transactions, far below the 40 percent to 45 percent economists and real estate professionals view as ideal. These buyers are being sidelined by stringent lending practices and lean inventory in the low end of the market.
Investors, who have been the main drivers of sales, bought 17 percent of the homes in June.
That was down a touch from 18 percent in May and 19 percent a year ago. The NAR said it was unclear whether this was just an anomaly or a sign the sustained increase in home prices was starting to make investors a bit more cautious.
Cash sales accounted for 31 percent of transactions in June, down from 33 percent in May.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)