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US home sales surge, but supply remains a headache
US home sales rebounded strongly in February, boosted by hefty gains in the South and West regions, but a chronic shortage of houses on the market remains an obstacle heading into the spring selling season.
The National Association of Realtors said on Wednesday that existing home sales jumped 3 per cent to a seasonally adjusted annual rate of 5.54 million units last month, ending two straight monthly declines.
"All signs point to a spring buying season of high prices and low inventory as any new construction that is added is snapped up quickly by buyers," said Danielle Hale, chief economist for realtor.com.
Economists polled by Reuters had forecast existing home sales rising 0.5 per cent to a rate of 5.4 million units in February. Sales soared 6.6 per cent in the South, where the bulk of sales activity occurs, and vaulted 11.4 per cent in the West.
Sales tumbled 12.3 per cent in the North-east and fell 2.4 per cent in the Midwest. Existing home sales, which account for about 90 per cent of US home sales, increased 1.1 per cent on a year-on-year basis in February.
There is an acute shortage of homes, especially at the lower end of the market. According to the NAR, sales of houses priced below US$100,000 plunged 17 per cent from a year ago. Sales of properties in the US$100,000-US$250,000 price range slipped one per cent on a year-on-year basis.
The Realtors group said there was double-digit sales growth for houses costing US$250,000 and above. Houses for sale typically stayed on the market for 37 days in February, down from 41 days in January and 45 days a year ago. Forty-six per cent of homes sold in February were on the market for less than a month.
The resulting high prices from the inventory squeeze, combined with rising mortgage rates, are a constraint for first-time buyers, who have been largely priced out of the market.
The 30-year fixed mortgage rate is at a four-year high of 4.44 per cent.
The Federal Reserve raised its interest rates on Wednesday against the backdrop of a tightening labour market and expansionary fiscal policy. The US central bank forecast at least two more rate hikes this year, a sign that mortgage rates could rise further.
On Wall Street, the PHLX housing index rallied, outperforming a broadly firmer US stock market. The dollar fell against a basket of currencies after the Fed rate decision and the Fed's economic outlook, while prices for US government bonds were trading marginally lower.
While the number of previously owned homes on the market increased 4.6 per cent from the prior month to 1.59 million units in February, housing inventory was down 8.1 per cent from a year ago. Supply has declined for 33 straight months on a year-on-year basis. It was the lowest February inventory on record.
At February's sales pace, it would take 3.4 months to exhaust the current inventory. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
The median house price increased 5.9 per cent from a year ago to US$241,700 in February. That was the 72nd consecutive month of year-on-year price gains.
House price gains far outpace wage growth, which has been stuck below 3 per cent on an annual basis despite the unemployment rate's being at a 17-year low of 4.1 per cent. Labour market strength is fanning demand for housing.
"This one-two punch has created a situation in which existing sales appear to be plateauing at around 5.5 million sales per year, well below the six million or more we might otherwise expect to see," said Aaron Terrazas, senior economist at Zillow.
But the supply squeeze could ease a bit in the months ahead.
The government reported last Friday that the number of single-family housing units under construction surged in February to the highest level since June 2008 while completions hit an almost 10-year high.
Still, economists expect supply to remain tight this year, which together with pricey home loans could result in modest home sales growth in 2018.
First-time buyers accounted for 29 per cent of transactions in February, unchanged from January and down from 31 per cent a year ago. Economists and realtors say a 40 per cent share of first-time buyers is needed for a robust housing market. REUTERS