The lowest mortgage rates on record probably helped keep sales of previously owned U.S. homes close to a two-year high in October, and underpinned construction of new residences, economists said before two reports this week.
Purchases of existing dwellings held at a 4.75 million annual rate last month, according to the median forecast in a Bloomberg survey before Monday’s report from the National Association of Realtors. Housing starts eased in October to an 840,000 pace from a four-year high of 872,000 units in September, Commerce Department figures may show Tuesday.
Demand for residential real estate is also being propelled by more affordable properties, progress in the labor market and improving consumer sentiment. The data underscore what Federal Reserve Chairman Ben S. Bernanke called “signs of improvement” in the market, which is helping fuel the expansion as manufacturing cools.
“Housing has definitely become a bright spot in the economy, while all the international-facing sectors are doing much worse,” said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York. The economy should sustain a “modest recovery” through year-end, she said.
Existing-home sales have improved after reaching a 3.39 million annual rate in July 2010, the lowest since comparable records began in 1999. In the buildup to the subprime lending collapse and recession, purchases reached a peak of 7.25 million in September 2005.
Confidence among homebuilders, as measured by the National Association of Home Builders/Wells Fargo index, held at 41 in November, the highest since June 2006, data Monday may show. Readings lower than 50 mean more respondents still said conditions were poor.
The average rate on a 30-year, fixed mortgage declined to 3.34 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.
The Standard & Poor’s Supercomposite Homebuilding Index has advanced 70 percent since the end of last year, outpacing the 8.1 percent gain in the broader S&P 500.
The housing market would accelerate even more if it was accompanied by a bigger pickup in employment, according to homebuilder D.R. Horton Inc. The Fort Worth, Texas-based company, which is the largest U.S. homebuilder by volume, reported fiscal fourth-quarter earnings last week that beat analysts’ estimates.
“What we’re seeing is improvement off of an extremely low bottom in the housing market,” William Wheat, chief financial officer at D.R. Horton, said at a Nov. 15 conference. “We’re seeing small amounts of job growth right now. We’re going to need to see more over the long term. Jobs is the No. 1 driver for housing demand.”
Companies added 184,000 workers to payrolls in October, the most since February, Labor Department figures showed earlier this month.
“Continued weakness in housing -- reflected in falling prices, low rates of new construction, and historic levels of foreclosure -- has proved a powerful headwind to recovery,” Bernanke said last week. “It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country.”
The Fed chairman is pressing on with record easing including a plan to buy $40 billion a month of mortgage-backed securities, in a bid to spur growth and reduce a 7.9 percent unemployment rate.
While tighter credit standards after a collapse in the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery,” Bernanke said.
Some members of the Federal Open Market Committee said monthly mortgage bond purchases by the Fed are “likely to reinforce the nascent recovery in the housing market,” according to minutes of their Oct. 23-24 meeting released Nov. 14.
The housing starts figures may soon reflect the effects of Sandy, the biggest Atlantic storm on record. Construction and home repair companies may get a lift from rebuilding in New Jersey and New York. The storm may provide a boost similar to that provided by Hurricane Irene, which added about $360 million in sales last year, Home Depot Inc. executives said on a Nov. 13 earnings call.
“The property damage, as we understand it, related to Irene was about $16 billion; the property damage for Sandy is about $20 billion, so it would suggest possibly higher sales, but it’s impossible for us to know right now,” said Carol Tome, the Atlanta-based company’s chief financial officer.
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