WASHINGTON: US home sales jumped to their highest level in nearly two years in December, the latest indication that lower mortgage rates are helping the housing market to regain its footing after hitting a soft patch in 2018, though record low inventory could be an obstacle to continued strong gains.
The report from the National Association of Realtors on Wednesday followed on the heels of government data last week showing homebuilding raced to a 13-year high in December. Renewed housing market momentum could soften some of the hit on the economy from manufacturing as the thaw in US-China trade tensions is offset by Boeing’s suspension this month of production of its troubled 737 MAX plane.
“The previous weak link, housing, is coming back, but the current laggard, manufacturing, is slowing further,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Existing home sales increased 3.6 per cent to a seasonally adjusted annual rate of 5.54 million units last month, the highest level since February 2018, boosted by a surge in sales of multi-family housing units and gains in single-family home dwellings. November’s sales pace was unrevised at 5.35 million units.
Economists polled by Reuters had forecast existing home sales would increase 1.3 per cent to a rate of 5.43 million units in December. Last month, existing home sales rose in the Northeast, West and the populous South. But sales fell in the Midwest.
Existing home sales, which make up about 90 per cent of US home sales, surged 10.0 per cent on a year-on-year basis in December. For all of 2019, sales were unchanged at 5.34 million units.
The report helped to lift the PHLX housing index. Stocks on Wall Street were trading higher, also cheered by an upbeat forecast from IBM and China’s efforts to contain a new flu-like virus outbreak. The dollar was little changed against a basket of currencies, while US Treasury prices were mixed.
The housing market is being supported by cheaper mortgage rates after the Federal Reserve cut interest rates three times last year. The 30-year fixed mortgage rate has dropped to an average of 3.65 per cent from its peak of 4.94 per cent in November 2018, according to data from mortgage finance agency Freddie Mac.
But the sector, which accounts for about 3.1 per cent of gross domestic product, remains constrained by a lack of homes, especially in the lower-priced segment of the market, because of land and labour shortages.
The supply squeeze and resulting reacceleration in house price inflation could slow home sales this year.
According to the NAR, there was a 14 per cent drop from a year earlier in sales of houses priced $100,000 and below.
— Reuters
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