September 20, 2012 11:00:37 AM
WASHINGTON -- A jump in sales of previously occupied homes and further gains in home construction suggest the U.S. housing recovery is gaining momentum.
The pair of reports Wednesday follows other signs of steady progress in the housing market after years of stagnation. New-home sales are up, builder confidence has reached its highest level in more than six years and increases in home prices appear to be sustainable.
Sales and construction rates are still below healthy levels, economists caution. But the improvement has been steady.
And the broader economy is likely to benefit. When home prices rise, Americans typically feel wealthier and spend more -- a point Federal Reserve Chairman Ben Bernanke made last week after the Fed unveiled a plan to lower mortgage rates. Consumer spending drives 70 percent of the economic growth.
"We have a real housing recovery taking root, and that has positive implications for the broader economy," said Sal Guatieri, senior economist at BMO Capital Markets.
"If home prices continue to rise, so, too, will household wealth and consumer confidence."
Sales of previously occupied homes rose 7.8 percent in August from July to a seasonally adjusted annual rate of 4.82 million, the National Association of Realtors said Wednesday. That's the highest level since May 2010, when sales were aided by a federal home-buying tax credit.
U.S. builders broke ground on 2.3 percent more homes and apartments in August than July. The Commerce Department said the annual rate of construction rose to a seasonally adjusted 750,000. The increase was driven the best rate of single-family home construction since April 2010.
Even with the gains, the market has a long way back to full health. Sales of previously occupied homes remain below the more than 5.5 million that's consistent with a thriving market. In better economies, homebuilders start twice as many homes.
Strict credit standards and bigger down payment requirements have made it harder for many first-time buyers -- who are critical to a housing rebound -- to qualify for mortgages. The number of first-time homebuyers made up just 31 percent of the market in August. In healthier markets, the percentage is more than 40 percent.
For those who can qualify, the market is tempting. Mortgage rates are just above record lows. Prices, on average, are much lower than they were six years ago.
The Fed plans to spend $40 billion a month to buy mortgage bonds for as long as it thinks necessary to make home buying more affordable. Bernanke said the Fed will keep buying the bonds until the job market improves "substantially."
Many buyers today are investors who see a great opportunity in the improving sales trends and rising prices.
Count Chad Shade as one of them.
Shade, 27, a homeowner in Brea, Calif., wants to buy a condo for around $150,000 that he can turn into a rental property. He's made offers on as many as six homes in the last three months. But he lost out every time to a rival paying cash.
"They seem to be selling like hotcakes," he said. "I just don't see prices going much lower. It seems the housing market is starting to trend upward, and I don't want to miss that train."
One challenge for buyers now is the limited number of homes on the market. There were 2.47 million homes available for sale in August, or 18 percent fewer than the same month in 2011.
Homes are selling more quickly than a year ago. The median amount of time that a home spent on the market was 70 days in August, the Realtors' group said. A year ago, the median timeframe was 92 days a year ago.
And the limited supply has helped lift home prices. The median home price in August was $187,400, according to the Realtors' group said. That's slightly lower than July but 9.5 percent higher than August 2011 -- the largest year-over-year price increase since January 2006.
Other surveys have also shown sustainable gains in prices, albeit much smaller. Core Logic, a private real estate data provider, said home prices rose 3.8 percent in the 12 months ending in July. The Standard & Poor's/Case-Shiller index said last month that home prices rose in June on a year-over-year basis, the first time in nearly two years.
One reason prices are rising is there have been fewer foreclosures and short sales. A short sale is when the seller owes more on the mortgage than the home is worth. Distressed properties made up just 22 percent of sales in August, down from 31 percent a year ago. Those sales occur at steep discounts, which drag down overall home prices.
Chris Jones, an economist with TD Economics, said more foreclosures and short sales are likely. But rising prices should make homeowners with stable properties more willing to put their houses on the market. That will likely offset the drag on prices.
"The market is picking up. There are a lot of non-distressed homes that are coming on the market," Jones said.
In the meantime, the lower supply of homes has boosted demand for new homes. That has made builders more confident in future sales.
Applications for building permits, a good sign of future construction, dipped in August to an annual rate of 803,000. Still, that's down only slight from July when permits reached a four-year high of 811,000.
"Since builders are not taking out permits because it is fun to visit their local government office and pay fees, we can conclude that there should be a solid rise in construction in the months to come," said Joel Naroff, chief economist for Naroff Economics Advisors.
AP Real Estate Writer Alex Veiga contributed from Los Angeles to this report.