Sales of Existing Homes in U.S. Fall to Lowest Since 2012

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Gene J. Puskar/AP
By Shobhana Chandra

Purchases of previously owned homes in the U.S. declined in February to the lowest level since July 2012, a sign the industry may be slow to recover.

Contract closings on existing properties fell 0.4 percent to a 4.6 million annual rate, matching the median projection in a Bloomberg survey, figures from the National Association of Realtors showed Thursday in Washington. Prices rose 9.1 percent from a year earlier, the group said.

The slowdown in housing since the middle of last year reflects a pickup in borrowing costs, declining affordability, limited job growth and, more recently, bad weather. At the same time, Federal Reserve Chair Janet Yellen said Wednesday that more household formation will allow the real-estate market to strengthen.

"It may take some time to get sales back on track after the weather effect," Tom Simons, an economist at Jefferies in New York, said before the report. "Home sales will keep growing this year though maybe not at the pace we saw last year. Rising mortgage rates are a modest negative for demand."

Estimates in the Bloomberg survey of economists ranged from 4.5 million to 4.76 million. The prior month's pace was unrevised at 4.62 million.

Stocks declined, sending equities to a second day of losses, after Yellen signaled Wednesday that interest rates may rise by the middle of next year. The Standard & Poor's 500 index (^GSPC) dropped 0.1 percent to 1,859.18 at 10:05 a.m. in New York.

Jobless Claims

Another report Thursday showed the number of Americans filing applications for unemployment benefits held last week near the lowest level in almost four months, a sign the labor market continues to strengthen. %VIRTUAL-article-sponsoredlinks%Jobless claims increased by 5,000 to 320,000 in the week ended March 15.

The median price of an existing home rose from February 2013, to $189,000, Thursday's report showed. Sales of home priced $250,000 and less declined, while those selling for more increased.

First-time buyers accounted for 28 percent of all purchases in February, up from 26 percent in January that was the lowest in data going back to October 2008.

Compared with a year earlier, purchases decreased 6.9 percent on an unadjusted basis.

The number of previously owned homes on the market rose 6.4 percent to 2 million. At the current sales pace, it would take 5.2 months to sell those houses, the highest since April 2013, compared with 4.9 months at the end of the prior month. Less than a five months' supply is considered a tight market, the Realtors group has said.

One-Family Homes

Sales of existing single-family homes decreased 0.2 percent to an annual rate of 4.04 million. Purchases of multifamily properties -- including condominiums and townhouses -- fell 1.8 percent to a 560,000 pace.

Purchases declined in two of four regions, led by an 11.3 percent drop in the Northeast. Sales rose in the South and West.

Of all purchases, cash transactions accounted for about 35 percent, the report showed.

Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 16 percent of the total.

"Prices are rising much faster than people's incomes," Lawrence Yun, NAR chief economist, said at a news conference Thursday as the figures were released. "The biggest factor is affordability," which has been reversed. Faster job growth can help ease the sting of higher prices and borrowing costs, he said.

Since 2008

Existing-home sales, tabulated when a purchase contract closes, have recovered from a 13-year low of 4.11 million in 2008, three years after a record 7.08 million houses were sold in 2005. Still, higher prices and borrowing costs have put properties out of reach for some Americans, helping explain a slowdown in sales since July.

Colder weather and snowstorms in parts of the U.S. have made it difficult to gauge the true health of housing and other indicators such as retail sales and manufacturing. February ended with its coldest final week since 2003, according to Berwyn, Pennsylvania-based weather data provider Planalytics Inc. The second week of the month was the snowiest such period since 2007.

Housing Starts

Other data have shown new projects have been slow to get under way because of the bad conditions, also depressing builder sentiment. Housing starts were little changed in February at a 907,000 annualized rate, Commerce Department data showed this week. In November, new construction was running at a 1.1 million pace.

The National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March.

Warmer temperatures may revive construction in coming months, and some companies are more upbeat. Among those is Hovnanian Enterprises (HOV), New Jersey's largest homebuilder.

"We believe this is a temporary pause in the industry's recovery," Chief Executive Officer Ara Hovnanian said in a statement on March 5. "Based on the level of housing starts across the country, we continue to believe the homebuilding industry is still in the early stages of recovery."

KB Home (KBH), a builder primarily focused on first-time buyers, Wednesday reported a fiscal first-quarter profit that beat analyst estimates as revenue and prices soared.

Restrained Affordability

Rising borrowing costs have also restrained affordability. The average 30-year, fixed-rate mortgage rate was 4.37 percent in the week ended March 13, up from 3.63 percent a year earlier, according to Freddie Mac in McLean, Va.

Fed policy makers Wednesday gave themselves room to keep borrowing costs low at least until next year by dropping a linkage between the benchmark interest rate and a specific level of unemployment. The central bank also reduced the monthly pace of bond purchases by $10 billion, to $55 billion.

"Growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions," the Federal Open Market Committee said in a statement after its two-day meeting. Even so, "there is sufficient underlying strength in the broader economy to support ongoing improvement in labor-market conditions."

Policy makers also said that the recovery in housing is still slow. That may give way to a pickup as more people take advantage of historically low borrowing costs.

"There's a lot of demographic potential there for new household formation that would ultimately generate new construction," Yellen said during a news conference after the policy meeting. "And the level of rates I think does matter, and the fact that they're low now is something that should serve as a stimulus to people coming back into the housing market."

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Sales of Existing Homes in U.S. Fall to Lowest Since 2012
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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