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US housing recovery appears to be back on track

A fourth straight monthly increase in sales of existing homes provided the latest evidence on Thursday that the US housing market is rebounding from a weak start to the year.

Housing has been a drag on an otherwise strengthening economy, in part because a harsh winter delayed many sales. But Americans are stepping up purchases as more homes have been put up for sale. And low mortgage rates and moderating price gains have made homes more affordable.

“The momentum is in the right direction,” said Andrew Labelle, an economist at TD Bank who noted that the past four months have marked the fastest four-month sales gain since 2011. “Sustained jobs gains, as well as the fall in mortgage rates since the beginning of the year, appear to have unleashed at least some pent-up demand.”

Sales of existing homes rose 2.4 per cent in July to a seasonally adjusted annual rate of 5.15 million, the National Association of Realtors said on Thursday. That was the highest annual rate since September of last year.

The increase follows other encouraging signs that the housing market is improving. The pace of home construction starts surged 15.7 per cent in July to a seasonally adjusted annual rate of 1.1 million homes, the government said this week. Applications for building permits, a gauge of future activity, also strengthened last month.

And a survey of homebuilders released Monday showed that they were more confident about future sales.

The encouraging readings contrast with reports earlier this year, when weak sales and limited building led economists to characterise housing as a faltering piece of the economic recovery. Federal Reserve Chair Janet Yellen and Vice Chairman Stanley Fischer had pointed to housing as an economic weak spot.

Economists noted that housing still hasn’t fully recovered from its slowdown earlier this year. The annual sales pace remains 4.3 per cent below last July’s rate. And construction has merely returned to its pace in October; it has yet to exceed it.

Yet economists say they’re encouraged by signs that the latest sales gains are sustainable.

Stephanie Karol, an economist at IHS Global Insight, said a “virtuous cycle” is emerging: More homeowners are listing their properties for sale. A greater supply of homes then encourages more potential buyers to take the plunge. And that, in turn, helps sustain modest price gains, which lead more people to sell.

“This is exactly the sort of pattern we want to see,” Karol said.

The number of homes for sale rose 3.5 per cent in July from June to 2.37 million, the most in nearly two years.

Affordability is improving. The median price slipped a bit in July from June to $222,900, the Realtors said. Though that was still 4.9 per cent more than a year ago, year-over-year price gains have slowed.

And the average rate for a 30-year mortgage fell to 4.1 per cent this week, the lowest level this year, according to mortgage giant Freddie Mac. At the start of the year, the average rate was 4.53 per cent.

A study released on Thursday by data provider Zillow found that home buyers paid just 15.3 per cent of their incomes on the mortgage for a typical home at the end of the April-June quarter.