Tuesday, March 22, 2005

U.S. Feb. Existing Home Sales Fall to a 6.79 Mln Rate

March 23 (Bloomberg) -- U.S. sales of previously owned homes fell less than forecast in February to a 6.79 million annual rate, supported by cheap mortgage rates and growing employment, an industry report showed.

Existing home sales decreased 0.4 percent last month from a revised 6.82 million-unit rate in January that was higher than initially estimated, the National Association of Realtors said today in Washington. Economists surveyed by Bloomberg News expected home resales would fall 1.5 percent to a 6.7 million annual pace. Sales reached a record 6.784 million for all of 2004 and have set records in each of the last four years.

An improving job market will give buyers the income needed to keep sales strong as Federal Reserve policy makers raise borrowing costs and mortgage rates follow, though sales aren't likely to keep rising, according to economists. Central bankers yesterday raised their target interest rate by a quarter percentage point, the seventh such increase since June.

``We are still in a very, very strong market,'' Daryl Jesperson, chief executive of Greenwood Village, Colorado-based Re/Max International Inc., a real estate brokerage franchiser with more than 100,000 agents in more than 50 countries, said in an interview. ``A stable employment picture, historically low interest rates and an economy that is doing well are all promoting activity.''

Estimates ranged from 6.4 million to 7 million. The report now includes sales on condominiums and co-operative apartments as well as single-family homes. January was previously reported at a 6.8 million rate.

Regions

Sales fell 3.4 percent in the South to a 2.56 million annual rate. They were unchanged in the West at 1.59 million and rose 2 percent in the Midwest to a 1.5 million pace and increased 4.6 percent in the Northeast to a 1.14 million rate.

Resales, which account for about 85 percent of the residential real estate market, are tabulated at contract closings so they reflect buying decisions made a month or two earlier. Purchases of new homes are counted when a contract is first signed, making them a better gauge of current activity.

The government's report on new home sales is due tomorrow from the Commerce Department. Sales are expected to rise to a 1.15 million annual pace from 1.106 million in January, according to a separate survey of economists by Bloomberg News.

The median price of an existing home rose 1.1 percent to $191,000 last month from $189,000 in January, the Realtors' group said. The median price is up 11 percent compared with February 2004.

Supply

Sales of single-family homes fell 0.3 percent to a 5.94 million annual pace in February. Sales of condos and co-ops dropped 1.2 percent to an 848,000 annual pace.

The supply of homes available for sale, another gauge of housing demand, rose to 4.2 months' worth in February from 3.8 months' worth the previous month.

Sales of existing homes contribute to economic growth by stimulating demand for home-improvement items such as bathroom fixtures, appliances and furniture.

Home Depot Inc., the world's biggest home-improvement retailer, reiterated on March 15 plans to hire 20,000 new employees as it opens 175 new stores this year.

Low mortgage rates are also keeping homes affordable. The 30- year fixed rate averaged 5.63 percent in February, compared with 5.71 percent a month earlier, according to figures from Freddie Mac, the No. 2 buyer of U.S. mortgages. The rate reached a four- decade low of 5.21 percent in June 2003.

Affordability

The Realtors group's affordability index rose to 133.6 in January, the highest since May. The gauge compares the median price of a home with changes in incomes and interest rates.

When the Fed first raised the target rate in June, the average 30-year mortgage rate was 6.29 percent. Rates have risen this month amid concerns about inflation. The 30-year rate reached an average 5.95 percent last week, the highest since August.

``Mortgage rates are not yet high enough to crimp housing all that much, although the level of housing turnover is showing some early signs of plateauing,'' said Jay Feldman, an economist at Credit Suisse First Boston, in a report to clients. ``If mortgage rates continue to rise, that could slow home sales further in coming months.''

Rising rates may actually be causing purchases to accelerate this month as buyers try to beat even more increases later this year. Mortgage applications to purchase homes have increased in three of the last four weeks, according to Mortgage Bankers Association data. Last week the index dropped 3.5 percent to 446.4, just below the 501.6 record-high reached in January 2004.

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