U.S. homes sales accelerate; supply still a constraint
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[November 22, 2017]
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. home sales
increased more than expected in October as hurricane-related disruptions
eased, but a chronic shortage of houses which is pushing prices beyond
the reach of some first-time buyers remains an obstacle.
The National Association of Realtors said on Tuesday that existing home
sales rose 2.0 percent to a seasonally adjusted annual rate of 5.48
million units last month. The NAR said sales in Houston and
Jacksonville, regions which bore the brunt of Hurricanes Harvey and
Irma, had rebounded.
Sales in South Florida, however, remained weak last month.
The Realtors group said it expected activity in the areas affected by
the storms to fully recover by the end of the year.
"While this summer's storms undoubtedly took some steam out of the
housing market, the greater problem remains the general lack of
inventory," said Mark Vitner, a senior economist at Wells Fargo
Securities in Charlotte, North Carolina. "People simply are not moving
as much as they used to."
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Existing home sales make up about 90 percent of U.S. home sales. They
fell 0.9 percent on a year-on-year basis in October and remained well
below a 10-year-high 5.70 million-unit pace touched in March. Economists
had forecast home sales rising 0.7 percent from September to a 5.42
million-unit rate last month.
October marked two straight months of increases. There are concerns that
an effort by Republicans in the U.S. Congress to overhaul the tax code
could undermine the housing market.
Republicans in the House of Representatives have proposed allowing
interest payment deductions on mortgage debt only up to $500,000, and
only on a primary residence. Their colleagues in the Senate want to keep
the existing limit at $1 million but eliminate the deduction of interest
on home-equity loans.
"We just hope the tax cut plans are not too radical and end up scaring
the consumer and make the purchase of a new home even less affordable
after taxes," said Chris Rupkey, chief economist at MUFG in New York.
The PHLX housing index <.HGX> was trading higher in line with a broadly
firmer stock market. The dollar slipped against a basket of currencies
while prices for U.S. Treasuries rose.
LIMITED BUYING OPTIONS
The South, which accounts for almost half of the existing homes sales
market, recorded a 1.9 percent increase in sales last month. There were
also gains in sales in the Northeast, Midwest and West regions.
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![](../images/112217pics/busine39.jpg)
A U.S. flag decorates a
for-sale sign at a home in the Capitol Hill neighborhood of
Washington, August 21, 2012. REUTERS/Jonathan Ernst
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Home sales remain constrained by an acute shortage of properties, which is
exerting upward pressure on house prices, and sidelining some first-time buyers,
who accounted for 32 percent of transactions last month.
Economists and realtors say a 40 percent share of first-time buyers is needed
for a robust housing market.
The number of previously owned homes on the market fell 3.2 percent to 1.80
million units in October, a seven-month low. Supply was down 10.4 percent from a
year ago. Housing inventory has dropped for 29 straight months on a year-on-year
basis.
At October's sales pace, it would take 3.9 months to exhaust the current
inventory, down from 4.2 months in September. A six-month supply is viewed as a
healthy balance between supply and demand.
As a result, the median house price increased 5.5 percent from a year ago to
$247,000 in October. That was the 68th consecutive month of year-on-year price
gains. In contrast, annual wage growth has struggled to break above 2.9 percent
since the 2007/09 recession ended.
"Roughly half of what's available to buy is priced in the upper one-third of
home values, leaving scant options for those aging millennials and young
families trying to get their foot in the door," said Svenja Gudell, chief
economist at Zillow.
Builders have failed to plug the inventory gap, citing land and labor shortages,
as well as expensive raw materials.
A report last week showed housing starts surged 13.7 percent to a 1.290
million-unit pace in October. Housing completions increased 12.6 percent to a
rate of 1.232 million units last month, the highest level since February 2008.
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Realtors estimate that housing starts and completions need to be in a range of
1.5 million to 1.6 million units to bridge the inventory shortfall. Homes sold
in October typically stayed on the market for 34 days, down from 41 days a year
ago.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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