WASHINGTON – Sales of previously owned U.S. homes rose in September to the highest level in a year, adding to signs that residential real estate will be a plus for the economy.
Closings, which usually take place a month or two after a contract is signed, advanced 2.4 percent to a 5.17 million annual rate, the National Association of Realtors reported here Tuesday. Purchases rose 1.9 percent from the same month last year before adjusting for seasonal patterns.
Traction in the labor market and falling mortgage rates are helping underpin demand and providing a buffer for the economy as global markets slow. Easier lending standards and faster wage gains would attract more buyers, including those making their first foray into homeownership.
“We’re on a pretty stable trajectory,” said Guy LeBas, managing director at Janney Montgomery Scott in Philadelphia, who projected a 5.16 million annualized pace of sales. Borrowing costs are “pretty contained. The rate of payroll growth is a modest positive for the housing market.”
The median forecast of 77 economists surveyed by Bloomberg called for sales to climb to a 5.1 million annual rate. Estimates ranged from 4.95 million to 5.2 million.
The median price of an existing home rose 5.6 percent from September 2013 to $209,700, Tuesday’s report showed. The appreciation was led by a 5.1 percent year-to-year advance in the South.
The market, “one year from now, two years from now, it will be better,” Lawrence Yun, NAR chief economist, told reporters as the figures were released. “Job creation is good, we have low rates and more inventory is coming online.”
The number of previously owned homes on the market rose 6 percent from a year earlier, to 2.3 million. At the current sales pace, it would take 5.3 months to sell those houses, compared with 5.5 months at the end of the prior month. Less than a five months’ supply is considered a tight market, the Realtors group has said.
Purchases increased in three of four regions, led by a 7.1 percent gain in the West. Sales also rose in the Northeast and South.
Sales of existing single-family homes increased 2 percent to an annual rate of 4.56 million in September from the prior month, also the fastest pace in a year. Purchases of multifamily properties — including condominiums — rose 5.2 percent to a 610,000 pace.
Of all purchases, cash transactions accounted for about 24 percent, down from 33 percent 12 months earlier, the report showed. Investors, 63 percent of whom paid cash, represented 14 percent of the market last month. In September 2013, they accounted for 19 percent.
Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 10 percent of the total.
First-time buyers accounted for 29 percent of the market for a third month in September. They’ve represented less than 30 percent of all buyers in 17 of the past 18 months.
The share will “steadily increase with an improving economy and job creation,” Yun said.
Slower household formation, higher student debt balances, limited inventory in some parts of the country and stricter loan standards are developments that have been holding residential real estate back, according to Wells Fargo &Co., the biggest U.S. home lender.
“While the residential real estate market has definitely gotten better, which is good for the U.S. economy, it has not fully recovered,” John Stumpf, president and chief executive officer at Wells Fargo, said on an Oct. 14 earnings call. Still, “I believe the housing market will continue its recovery, driven by pent-up demand and affordability that even with the increase in home prices is still far better than the historical average.”
Declining borrowing costs will help bring homes within reach of more Americans. The average 30-year, fixed-rate mortgage fell to 3.97 percent in the week ended Oct. 16, the lowest since June 2013, according to Freddie Mac data. In November 2012, the rate dropped to 3.31 percent, the lowest in figures back to 1971.
Builders are also benefiting. Work began on more homes in September with a gain in multifamily projects outpacing single- family properties, Commerce Department data showed last week. Permits to build are also rising, up 1.5 percent to a 1.02 million annualized pace.
“The housing market has entered a period of more modest growth than we experienced in 2012 and 2013,” Larry Seay, chief financial officer at Meritage Homes, a Scottsville, Arizona-based builder, said at an Oct. 1 finance conference. “But we believe it is still in the early innings of recovery and has a potential to grow for many years.”
While household formation has been “running well below normal levels,” the U.S. population has grown and employment is picking up, he said.
“More people than ever, with more jobs than ever, represents a tremendous amount of potential demand for new housing since vacancy rates are very low today,” Seay said.
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