May 22, 2012 / 2:04 PM / 5 years ago

Home resales rise, boding well for economy

A newly constructed home is seen for sale in Joplin, Missouri May 16, 2012. REUTERS/Eric Thayer

WASHINGTON (Reuters) - The pace of sales for existing homes in April rose to its fastest in nearly two years and a falloff in foreclosures helped cause an unexpected jump in prices, hopeful signs for the country’s economic recovery.

Home resales increased 3.4 percent to an annual rate of 4.62 million units last month, the National Association of Realtors said on Tuesday.

Housing has been one of the economy’s weakest links as it recovers from the 2007-09 recession, but many economists think the sector will actually add to economic growth in 2012 for the first time since 2005.

The report on April resales supports that view and helps to dampen fears the recovery was stagnating after a report earlier this month showed tepid job growth in April.

“We’re still a ways from looking at an encouraging picture of the U.S. economy, though when it comes to housing, every little bit helps,” said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.

The annual sales pace was the fastest since May 2010. That was in line with expectations and pushed U.S. stock prices higher.

U.S. Treasuries prices fell as investors awaited news on how Europe will tackle its debt crisis, which continues to loom over the U.S. economy.

PRICE GAIN

Nationwide, the median price for a home resale jumped to $177,400 in April, up 10.1 percent from a year earlier.

That was the largest year-over-year gain since January 2006, and the NAR attributed the gains in part to a drop in homes sold following foreclosures. So-called distressed sales accounted for 28 percent of resales, down from 29 percent in March.

Still, Wall Street analysts were cautious about taking the increase as a sign home values were at the cusp of a big comeback. NAR’s calculations for prices may have been skewed by larger homes coming onto the market, analysts and the NAR said.

NAR economist Lawrence Yun said some seasonal factors might have played a role in the price increase because families tend to buy in the spring, which means bigger homes comprise a larger share of total sales.

“It does echo the message sent by most other related measures that have shown house prices stabilizing or firming,” said Daniel Silver, an economist at JPMorgan.

Home prices, as measured by the S&P/Case Shiller composite index, have fallen by about a third since mid-2006.

Yun said prices may rise 1 percent or 2 percent this year.

Last month, the number of unsold homes in the market appeared to contract a little. The NAR estimated the number of existing single family homes for sale would supply the market for 6.3 months, down from 6.5 months in March.

Total inventories rose 9.5 percent to 2.54 million, although that reading is not adjusted for seasonal shifts and April tends to be one of biggest months of the year for new homes going on the market, the NAR said.

The number of unsold homes on the market has fallen sharply over the last year and is currently at similar levels to those in 2004. The NAR’s reading for inventories, however, doesn’t include the country’s so-called “shadow inventory” - homes that will eventually hit the market following a foreclosure.

Economists increasingly think the housing sector has hit bottom after being devastated by a collapsed bubble in prices.

The head of U.S. housing strategy at Morgan Stanley, Oliver Chang, is optimistic enough that he is leaving his firm to start his own buy-to-rent housing fund.

Chang’s move comes at a time when many hedge funds and private equity firms are raising money to buy foreclosed homes. The intent is to rent them out for several years before selling them as the housing recovery takes hold.

Last week, the Commerce Department said groundbreaking for U.S. homes rebounded in April. On Wednesday, a government report is expected to show sales of new single-family homes rose last month to an annual rate of 335,000.

“No one is looking for a lot of bounce in housing, but I still think housing will add a quarter of a percentage point to growth over the next year,” said Cary Leahey, an economist Decision Economics in New York.

Additional reporting by Steven C. Johnson and Ellen Freilich in New York; Editing by Andrea Ricci and Chizu Nomiyama

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