Existing Home Sales Hit 18-Month High, Prices Rise

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Wilfredo Lee/AP
By Lucia Mutikani

WASHINGTON -- U.S. home resales surged to their highest level in 18 months in March as more homes came on the market, a sign of strength in housing ahead of the spring selling season.

The National Association of Realtors said Wednesday existing home sales increased 6.1 percent to an annual rate of 5.19 million units, the highest level since September 2013. The percent increase was the largest since December 2010.

The fairly upbeat report was another indication that the economy was regaining some momentum after hitting a speed bump at the start of the year. But data on retail sales, housing starts and manufacturing suggest the rebound in second-quarter growth will probably be insufficient to convince the Federal Reserve to start raising interest rates in June.

%VIRTUAL-pullquote-The stronger rebound in existing sales is extremely encouraging as it hints at a nascent rebound in economic activity over the coming weeks.%"The stronger rebound in existing sales is extremely encouraging as it hints at a nascent rebound in economic activity over the coming weeks," said Gennadiy Goldberg, an economist at TD Securities in New York.

Economists polled by Reuters had forecast home resales rising to only a 5.03 million-unit pace last month.

The U.S. housing index fell in line with the broader stock market. The dollar was weaker against a basket of currencies. Prices for U.S. Treasury debt fell.

Home sales have been constrained by a shortage of properties on the market, which has pushed up home prices and limited choice for potential buyers.

The outlook for housing is favorable against the backdrop of a strengthening labor market.

In a separate report, the Mortgage Bankers Association said applications for loans to purchase homes increased 5 percent last week to the highest level since June 2013. It was the fourth time in five weeks that purchase applications rose.

In March, the inventory of unsold homes on the market increased 5.3 percent from a month ago to 2 million units, the highest level since last November. Supply was up only 2 percent from a year ago.

Inventory growth should be averaging roughly 5.6 percent at this time of the year, when the market gets ready for the spring selling season, which runs from April through August and is traditionally the busiest time of the year for housing, according to the Realtors association.

Realtors and economists say insufficient equity and uncertainty about the economy's strength were forcing potential sellers to stay longer in their homes. A recent survey by the Realtors association showed homeowners on average staying in their homes for 10 years instead of the typical seven years.

At March's sales pace, it would take 4.6 months to clear houses from the market, down from 4.7 months in February. A supply of six months is viewed as a healthy balance between supply and demand.

With supply still tight, the median price for a previously owned home increased 7.8 percent from a year ago to $212,100.

That was the largest percentage gain since February 2014 and suggested that the pace of home price increases, which had been slowing after double-digit growth for much of 2013, appears to be reaccelerating.

First-time buyers accounted for 30 percent of transactions last month, well below the 40 percent to 45 percent share that economists and realtors say is required for a strong housing recovery.

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Existing Home Sales Hit 18-Month High, Prices Rise
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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