Sales of existing homes rise 1.2% in February

Washington

SALES of previously owned homes fell short of a five million annual rate in February for a second month, showing an industry struggling to gain traction amid rising prices and a lack of inventory.

Closings, which usually take place a month or two after a contract is signed, rose 1.2 per cent to a 4.88 million annual rate, the National Association of Realtors reported on Monday in Washington. The median value of a house climbed 7.5 per cent from the same month last year while the number of properties on the market was little changed.

Prices that are rising faster than incomes, still-tight borrowing standards and a lack of properties from which to choose are preventing Americans from taking advantage of mortgage rates that remain near historical lows. Further labour market gains and a loosening of credit rules might help offset these hurdles as the busiest time of year for real estate agents approaches.

"There are issues in terms of affordability and credit is still pretty tight for a lot of consumers, particularly those at the mid to low end of the scale," Scott Brown, chief economist at Raymond James & Associates Inc in St Petersburg, Florida, said before the report. "We should see credit getting somewhat easier in the months ahead."

The median price of an existing home rose to US$202,600 from US$188,400 in February 2014, the report showed. The 7.5 per cent increase over the past 12 months was the biggest in a year.

Price gains of this size at this point of the housing rebound "are unhealthy for the market", Lawrence Yun, NAR chief economist, told reporters as the figures were released.

One reason that property values are escalating is there aren't many homes from which to choose. There were 1.89 million houses on the market at the end of the month, down 0.5 per cent from the same month last year. "It's all about inventory," said Mr Yun. "If we had more inventory, it would restrain price growth."

At the current sales pace, it would take 4.6 months to run through the inventory, the same as in January. Six to seven months is considered more normal, Mr Yun said.

Sales of existing single-family homes climbed 1.4 per cent to an annual rate of 4.34 million. Purchases of multi-family properties - including condominiums - were little changed at 540,000 pace.

Rising prices are also starting to drive away investors, who accounted for 14 per cent of contracts last month, down from 17 per cent in January and 21 per cent a year ago.

Housing starts plummeted in February by the most since 2011 as plunging temperatures and snow limited construction. Work began on 897,000 houses at an annualised rate, down 17 per cent from January and the fewest in a year, the Commerce Department reported earlier this month. The pace was slower than the most pessimistic projection of economists surveyed by Bloomberg.

Beyond severe weather, robust payroll gains and still-cheap borrowing costs should help offset weak wage growth as Americans consider big-ticket purchases.

Employers added more jobs than forecast in February and the unemployment rate dropped to 5.5 per cent, the lowest in almost seven years. The 295,000 gain last month was stronger than the 259,670 monthly average in 2014 that was the best labour market performance since 1999. BLOOMBERG