December 22, 2009 / 4:04 PM / 10 years ago

U.S. home sales bolster economic growth prospects

WASHINGTON (Reuters) - Sales of previously owned U.S. homes jumped to the highest level in nearly three years last month, the latest sign the economic recovery was gaining steam after growing below expectations in the third quarter.

A for sale sign sits outside a house in Miami Beach October 22, 2009. REUTERS/Carlos Barria

The National Association of Realtors said on Tuesday that existing home sales rose 7.4 percent to an annual rate of 6.54 million units in November. It was the fastest pace since February 2007 and above analysts’ 6.25 million-unit forecast.

Separately, the Commerce Department said U.S. gross domestic product grew at a 2.2 percent annual rate in the third quarter instead of the 2.8 percent pace reported last month. Economists had thought the final estimate of GDP, which measures total goods and services output within U.S. borders, would hold steady at 2.8 percent.

“The economic reports of late have been very upbeat. Most people are looking now for 3.5 to 4.0 percent GDP growth in the fourth quarter, and the housing numbers are the icing on the cake,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.

U.S. stocks rose for a third straight session, with the Standard & Poor’s 500 index closing at its highest level in 14 months. The Dow Jones home construction index rose 4 percent on the sturdy housing data.

Prices of U.S. government debt fell for the second day. The U.S. dollar maintained its winning streak, hitting its strongest level against the yen in nearly two months. The euro fell to a 3-1/2-month low against the dollar.


The housing market, the main trigger of the most painful U.S. recession in 70 years, is stabilizing, analysts said. They hope an improving market will lift the spirits of households hit by the highest unemployment in a quarter century and encourage them to spend.

Even more heartening, the decline in home prices is fading. The median home price fell 4.3 percent in November from a year ago, to $172,600, the National Association of Realtors said. It was the smallest drop since November 2007.

A separate report from the U.S. Federal Housing Finance Agency showed home prices rose 0.6 percent in October from September.

“We have established a definitive turn in the housing market, but it continues to be reliant on government support. We should see a passing of the baton from a government-supported housing rebound to one that is self-sustaining,” said Richard DeKaser, president of Woodley Park Research in Washington.

While the expansion in GDP in the July-September period was not as vigorous as had been thought, it was still the fastest pace since the third quarter of 2007 and ended four straight quarters of declining output.

Growth was boosted by government stimulus, including the popular cash for clunkers program and a tax credit for first-time home buyers. But debate continues over the sustainability of the recovery once government support wanes.

However, recent data, including retail sales, business inventories and trade figures, strongly indicate the pace of growth has gained speed in the fourth quarter.


Last week, the Federal Reserve gave a cautiously upbeat economic assessment and promised to hold overnight lending rates near zero for an “extended period” to aid the recovery.

“Fourth-quarter GDP growth is going to be spectacular. And thanks to fiscal infrastructure spending, growth is likely to be fairly decent during the first half of 2010 too,” said Paul Dales, U.S. economist at Capital Economics in Toronto.

While the economy has turned the corner, the effects of the recession continue to reverberate. Ford Motor Co said on Monday it was offering its 41,000 U.S. factory workers buyouts and early retirement offers in a bid to reduce its payroll costs and achieve profitability by 2011.

Growth in the third quarter was held back by weak business spending. A slightly more aggressive liquidation of inventories than previously estimated also was a factor in the downward revision to the GDP figures.

In addition, nonresidential building activity dropped 18.4 percent, rather than 15.1 percent, a reflection of the troubles in the commercial property market. A widening trade gap also weighed on growth.

Consumer spending was revised down slightly, to a 2.8 percent gain from 2.9 percent, but it still helped to offset the drag from the steep drop in business investment.

While businesses continued to whittle down their inventories, the pace at which they liquidated stocks slowed sharply from the second quarter, adding nearly 0.7 percentage point to third quarter growth.

The deep inventory cuts of the recent quarter should lay the groundwork for a pickup in production.

The department also said after-tax corporate profits grew 12.7 percent in the third quarter, a little softer than the 13.4 percent estimated last month. It was still the largest gain since the first quarter of 2004.

Additional reporting by Corbett Daly in Washington, Richard Leong and Edward Krudy in New York; Editing by Andrew Hay

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