Home Sales See Biggest Monthly Gain in Nearly 3 Years

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Home Sales
Wilfredo Lee/APA prospective homebuyer checks out a house in Miami Shores, Fla.
By MARTIN CRUTSINGER

WASHINGTON -- Sales of previously owned U.S. homes posted the best monthly gain in nearly three years in May, providing hope that housing is beginning to regain momentum lost over the past year.

The National Association of Realtors reported Monday that sales of existing homes increased 4.9 percent last month to a seasonally adjusted annual rate of 4.89 million homes. The monthly gain was the fastest since August 2011, but even with the increase, sales are still 5 percent below the pace in May 2013.

"Sales appear to be moving up again, although the increase to date -- over two months -- reverses just a fraction of earlier weakening," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a research note.

Sales had been dampened by last year's rise in mortgage rates from historic lows and various other factors including tight supplies and tougher lending standards.

The median price of a home sold in May was $213,400, up 5.1 percent from a year ago.

After hitting a recent peak of 5.33 million sales at an annual rate last summer, sales started sliding. Potential buyers have been grappling with a limited supply of houses, more expensive homes and lending standards which have been tightened in response to the housing boom of the past decade which resulted in millions of houses going into foreclosure.

Five years into the recovery from a deep recession that was triggered in part by the collapse in housing, housing sales have yet to return to their historic averages. Demand remains strong for the most expensive homes but has faltered for starter homes and those priced for middle class buyers.

The pace of home sales is below the 5.1 million homes sold in 2013 and off the pace of 5.5 million annual sales that would be consistent with a healthy housing market.

Lawrence Yun, chief economist for the Realtors, said because of the weaker start to sales this year, he expects that sales for the entire year will be down 3.1 percent this year to 4.9 million, compared with 5.1 million sales of existing homes in 2013, which had been a 9.2 percent rise from 2012. Yun said he was predicting a stronger second half for sales this year but he said that wouldn't be enough to compensate for the weakness at the start of this year, a slowdown that reflected in part a harsh winter.

Sales of existing homes began to slow in the second half of 2013 as mortgage rates crept up from historic lows, but home prices continued to rise due to a lack of available homes for sale.

Average rates for 30-year fixed-rate mortgages declined to 4.17 percent last week, down from 4.20 percent the previous week. Mortgage rates are about a quarter of a percentage point higher than they were at the same time last year.

Yun forecast that mortgage rates will be rising at the end of this year as the Federal Reserve moves closer to starting to boost interest rates. He forecast rates would average 4.9 percent in the last three months of this year and 5 percent in the first quarter of 2015.

The total inventory of homes for sale at the end of May climbed 2.2 percent to 2.28 million homes, which represents a 5.6-month supply at the May sales pace. Inventory is 6 percent higher than a year ago, which analysts said should help to slow price gains and boost sales by giving would-be buyers more homes to choose from.

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9 Numbers That'll Tell You How the Economy's Really Doing
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Home Sales See Biggest Monthly Gain in Nearly 3 Years
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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