Existing Home Sales Climb
Sales of previously occupied homes climbed in December, making 2013 the best year of the housing market since 2006. That despite the gradual rise in mortgage rates last year. According to the National Association of Realtors®, homebuying increased 1 percent to a 4.87 million annual pace. Economists surveyed by Bloomberg were expecting sales to reach a 4.93 million rate in December.
The NAR report says that 5.09 million previously occupied homes were sold in 2013 compared with 4.66 million the prior year. That’s the most since 2006. The stellar months were July and August when homebuying reached a 5.39 million annualized pace. That was a four-year high. The trend would have probably continued if mortgage rate increases hadn’t hurt consumer confidence.
The good showing in sales overall is an indication that people are slowly getting adjusted to higher borrowing rates. It also shows their emerging confidence in the housing market and the economy as a whole. According to reports, last week, claims for jobless benefits held near the lowest level in more than a month, while the index of leading indicators climbed in December.
Declining consumer debt and rising home values are also boosting consumer optimism. Consumers feel more confident about jumping into the fray and making what is often the biggest purchase of a lifetime – a home.
The increasing demand for existing homes is fueling the appetite for new construction and home improvements, which is further expected to help the economy and the housing market in 2014, experts say.
“We’ll see better job growth, a better housing market and better overall GDP growth throughout 2014,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., among the biggest mortgage lenders in the U.S. It “will be another year of recovery for the housing market with more sales, more homes constructed and prices up.”
Sales of single-family homes climbed 1.9 percent to an annual rate of 4.3 million. But the sales pace of multifamily properties, including condominiums, dropped 5 percent to 570,000.
The one worrisome figure is that first-time buyers seem to continue to struggle. The segment accounted for 27 percent of all purchases in December, the lowest number since at least 2008, according to Bloomberg.
“Normal would be closer to 40 percent,” the NAR chief economist told the media at a news conference. “Two opposing forces are at work. One is job creation, which is a positive factor for housing. But the negative is fast-declining affordability,” due in part to higher prices and mortgage rates.
Mortgage Rates Still High
The average rate for the 30-year fixed mortgage dipped to 4.39 percent this week. Last week, rates were 4.41 percent. Although the decrease this week is a good sign, rates are still considerably up compared to 3.35 percent in early May.
What drove the increase was speculation that the Federal Reserve would decrease its $85 billion per month bond-buying program, which has been keeping long-term interest rates at record low levels. The Fed indicated last month that the economy was probably strong enough to cut back on bond purchases.
A rise in rates coupled with increasing home prices could adversely affect home sales in the coming months.
Home Prices Rise
The demand for homes fueled an increase in prices. In December, the median home price of an existing home jumped 9.9 percent to $198,000, compared to $189,200 the previous year. Overall, the median price rose 11.5 percent in 2013 to $197,100. That’s the most in eight years. The numbers could be affected by particular regions of the country where homes are very expensive.
According to NAR, sales dropped in the the Northeast and Midwest because of bad weather. Last month, the median time a home was on the market jumped to 72 days from 56 days in November.
Read More: realestate.com