U.S. housing turning the corner, inflation creeping up

WASHINGTON Tue Jul 22, 2014 12:48pm EDT

A home for sale is seen in Great Falls, Virginia August 23, 2010. REUTERS/Kevin Lamarque

A home for sale is seen in Great Falls, Virginia August 23, 2010.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - U.S. home resales hit an eight month-high in June, suggesting the housing market was gradually regaining momentum and would help the economy to stay on a higher growth path this year.

The third straight month of home sales gains, reported by the National Association of Realtors on Tuesday, added to employment and retail sales data that have indicated economic growth ended the second quarter on a firmer note. A separate report showed inflation moving slightly higher.

"The economy is normalizing from whatever went wrong in the first quarter. Growth is up and running," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Existing home sales rose 2.6 percent to an annual rate of 5.04 million units last month, with the median house price hitting its highest level since 2007.

The housing market stumbled in the second half of last year, raising concerns it could undermine the economy's recovery. Now, its rebound is bolstering forecasts for stronger growth.

Growth is expected to have accelerated to above a 3.0 percent annual rate in the second quarter and is forecast maintaining an even stronger pace for the rest of the year.

Housing had been stymied by higher interest rates, a shortage of properties for sale and slow wage growth. With the labor market tightening, mortgage rates easing and the pace of house price increases moderating as supply improves, the foundation is being laid for further gains in home sales.

"We may see a late season summer push in housing activity. Inventory is picking up and mortgage rates are hovering around lows for the year, which make things a bit easier for first-time buyers," said Nela Richardson, chief economist at Redfin.

U.S. homebuilder stocks rose on the data, with the Dow Jones index for home construction up about 1.5 percent at mid-day.

GASOLINE PUSHES UP INFLATION

A second report from the Labor Department showed a surge in gasoline prices pushed up inflation in June, but the underlying trend remained consistent with only a slow and modest build-up of inflationary pressures.

The Consumer Price Index increased 0.3 percent last month, with gasoline accounting for two-thirds of the gain, after May's 0.4 percent rise. In the 12 months through June, the CPI was up 2.1 percent, the same as in May.

The rise is a welcome development for some Federal Reserve officials who had worried that price pressures were too low.

While a separate inflation gauge watched by the Fed is running below the U.S. central bank's 2 percent target, some economists believe it will start bumping against that level later this year as an acceleration in job growth lifts wages.

"On the back of projections for strengthening domestic demand and lessening labor market slack, we expect to see wage inflation pick up from its disappointing post-recession pace," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Gasoline prices jumped 3.3 percent last month, the largest rise in a year, after increasing 0.7 percent in May. Food prices advanced for a sixth straight month, but the pace moderated sharply, with only a 0.1 percent gain as the effects of an earlier drought in California start to fade.

Stripping out food and energy prices, the so-called core CPI rose 0.1 percent after an increase of 0.3 percent in May, held back by declines in prices for motor vehicles.

The cost of shelter moderated a bit as did airline fares and medical care services, which were flat. There were big increases in tobacco prices and the cost of household furnishing and operations rose for the first time in a year.

In the 12 months through June, the core CPI increased 1.9 percent after rising 2.0 percent rise in May.

(Reporting by Lucia Mutikani Additional reporting by Jason Lange; Editing by Andrea Ricci)

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Comments (3)
Simplerman wrote:
These are all cash sales, investors buying up ugly houses to then use as rentals. Not such bad thing (I guess), but no sign of recovery, in fact just the opposite.

BTW, I see lots of stalled out construction sites. Banks getting cold feet on the financing.

Jul 22, 2014 1:28pm EDT  --  Report as abuse
DanielDrums wrote:
Just Real Estate investors buying up homes for rent or re-sale. I agree with Simplerman. It is artificial growth at best. I fail to see much progress in the communities I am around. And they are big cities. It is still a bleak market and I actually see things getting set up for a huge fall.

Jul 22, 2014 2:18pm EDT  --  Report as abuse
pyradius wrote:
Both prior comments are incorrect. Roughly 33% are cash sales and many of those are retiring baby boomers who are not first-time home buyers.

Jul 22, 2014 4:07pm EDT  --  Report as abuse
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