WASHINGTON (Reuters) - U.S. home resales rose in October to their highest level in more than 9-1/2 years as homebuyers, buoyed by an improving labor market, took advantage of still-low mortgage rates to snatch up properties after many were shut out during the busy summer selling season.
The jump in sales was further evidence of a pickup in economic growth early in the fourth quarter.
“You have to be pretty confident to buy a house,” said Chris Rupkey, chief economist at MUFG Union Bank in New York. “Consumers certainly were in October, showing no hesitation whatsoever ahead of the presidential elections with its often harsh rhetoric and focus on all the things wrong with the economy.”
While a recent surge in mortgage rates could hurt the housing market next year, the impact is likely to be modest given a labor market that is at or close to full employment.
The National Association of Realtors said on Tuesday existing home sales rose 2.0 percent to an annual rate of 5.6 million units last month, the highest level since February 2007.
The Realtors group attributed the rise in sales to “unrealized pent-up demand.” Tight supply over summer unleashed bidding wars, which pushed out some would-be buyers. Opportunities for buyers during the autumn and winter months, usually quiet periods for home sales, are likely improving.
New listings last month typically stayed on the market for 41 days, up from 39 days in September, but down from 57 days a year ago. Economists had forecast sales slipping 0.5 percent to a 5.43 million-unit pace in October. Sales were up 5.9 percent from a year ago. They rose in all four regions last month.
The report came on the heels of data last week showing a surge in housing starts. It also added to strong reports on retail sales and the labor market as well as improving manufacturing surveys in suggesting that the economy continued to gain speed early in the fourth quarter.
Rising homes sales suggest an increase in brokers’ commission, which should boost the residential construction component in the government’s gross domestic product report.
The Atlanta Federal Reserve is forecasting GDP rising at a 3.6 percent annual rate in the fourth quarter. The economy grew at a 2.9 percent pace in the July-September period. The strong economic growth outlook together with a tightening labor market are likely to encourage the Federal Reserve to raise interest rates next month.
The dollar was little changed against a basket of currencies, while prices for U.S. government bonds rose marginally. U.S. stocks were almost flat after touching record highs. The PHLX housing index fell 0.30 percent.
Shares in the nation’s largest homebuilder, D.R. Horton Inc, declined 0.98 percent and Lennar Corp dropped 1.3 percent.
The NAR said it expected home resales to average 5.36 million units this year. Despite last month’s rise, existing home sales remain constrained by a persistent shortage of properties available for sale.
Sales could slow marginally next year following a run-up in mortgage rates in the wake of this month’s election of Republican candidate Donald Trump as the next president.
Trump’s surprise victory has led to a surge in U.S. government bond yields amid investor concerns that the business mogul’s proposed expansionary fiscal policy agenda could fan inflation.
Mortgage rates closely track movements in U.S. Treasury yields. Since the Nov. 8 presidential election, the fixed 30-year mortgage rate has increased nearly 40 basis points to average 3.94 percent, according to data from mortgage finance firm Freddie Mac.
But the higher borrowing costs could encourage potential buyers to rush into the market in anticipation of further increases in interest rates. The NAR is forecasting existing home sales increasing to about 5.46 million units next year.
“Rising rates tend to get the attention of fence sitters, who actually have to now start making decisions,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
“Yes, some may not be able to get a mortgage, but prices will adjust, so I don’t expect a significant dislocation in the housing market even if rates rise another one percentage point.”
Housing is being supported by improving household formation as the tightening labor market boosts employment prospects for young adults. The dearth of homes for sale is keeping upward pressure on house prices. The median house price rose 6.0 percent from a year ago to $232,200 last month.
The number of unsold homes on the market slipped 0.5 percent from September to 2.02 million units. Supply was down 4.3 percent from a year ago and had declined for 17 straight months on a year-on-year basis.
At October’s sales pace, it would take 4.3 months to clear the stock of houses on the market, down from 4.4 months in September. A six-month supply is viewed as a healthy balance between supply and demand.
While house price increases could make home purchasing expensive for first-time buyers, it is raising equity for homeowners and enticing some to put their homes on the market.
Reporting by Lucia Mutikani; Editing by Andrea Ricci