Existing Home Sales Fall, Price Appreciation Slows

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Views Of Brooklyn Brownstones Ahead Of Existing Home Sales
Craig Warga/Bloomberg via Getty Images
By CHRISTOPHER S. RUGABER

WASHINGTON -- Americans bought fewer existing homes in September than the previous month, held back by higher mortgage rates and rising prices.

The National Association of Realtors said Monday that sales of resold homes fell 1.9 percent last month to a seasonally adjusted annual rate of 5.29 million. That's down from a pace of 5.39 million in August, which was revised lower.

The sales pace in August equaled July's pace. Both were the highest in four years and are consistent with a healthy market.

Mortgage rates rose sharply over the summer from their historic lows, threatening to slow a housing recovery that began last year and has helped drive modest economic growth.

But many economists expect home sales will remain healthy, especially now that rates have stabilized and remain near historically low levels. Final sales in September reflected contracts signed in July and August, when rates were about a percentage point higher than in May.

The average rate on a 30-year fixed mortgage was 4.28 percent last week, down from a two-year high of 4.58 percent in August. That's also far below the 30-year average of 7 percent, according to Bankrate.com.

%VIRTUAL-article-sponsoredlinks%Sales of existing homes have risen at a healthy 10.7 percent in the past 12 months. Still, that's the slowest year-over-year increase in five months.

And the median home price has risen 11.7 percent in the past year, the Realtors said. That's also the slowest annual gain in the past five months.

Price increases may be slowing because more homes are finally coming on the market. The supply of available homes rose 1.8 percent from a year ago to 2.21 million, the first year-over-year increase in 2 ½ years.

The limited number of homes for sale is a key reason prices have risen so fast in the last year.

The economy is growing modestly and employers are adding jobs at a slow but steady pace. That's helped a growing number of Americans buy homes.

Still, many first-time buyers have been unable to enter the market. They made up just 28 percent of purchases in September, down from 32 percent a year ago. In healthier housing markets, they typically make up at least 40 percent of buyers.

First-time buyers are having trouble qualifying for loans because many banks have adopted tougher lending restrictions and higher down payment requirements since the housing bubble burst.

In their place, investors and Americans willing to pay cash are playing an outsize role in sales. Cash purchases made up 33 percent of September's sales, up from 28 percent a year ago.

Borrowing rates began to rise in May after Federal Reserve Chairman Ben Bernanke suggested that the Fed could start to slow its monthly bond purchases by the end of the year. The purchases are intended to keep interest rates low and stimulate the economy.

But the Fed decided against slowing its purchases at its September meeting, citing weak economic data and looming budget battles in Washington. The budget fights led to a partial government shutdown Oct. 1. The nation's borrowing limit was increased but only at the last minute. Economists have cut their forecasts for growth in the October-December quarter by about a half-percentage point because of the shutdown and debt limit fight.

As a result, many economists think the Fed won't slow its bond purchases until January or even later. That's likely to keep mortgage rates low well into the new year.

Existing Home Sales Fall, Price Appreciation Slows
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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