U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in low interest rates in anticipation of further increases in borrowing costs.
The third straight monthly increase in existing home sales, reported by the National Association of Realtors on Wednesday, suggested housing would contribute to economic growth in the fourth quarter after being a drag in the previous two quarters.
Existing home sales increased 0.7 per cent to an annual rate of 5.61 million units last month, the highest sales pace since February 2007. October’s sales pace was revised down to 5.57 million units from the previously reported 5.60 million units.
Economists had forecast sales slipping 1.0 per cent to a 5.50 million-unit pace in November. Sales were up 15.4 per cent from a year ago. They rose in the Northeast and South, but fell in the Midwest and West last month.
Mortgage rates have surged in the wake of Donald Trump’s victory in the Nov. 8 presidential election. Trump’s proposal to increase infrastructure spending and slash taxes is seen as inflationary.
Since the election, the fixed 30-year mortgage rate has increased about 60 basis points to an average 4.16 per cent, the highest level since October 2014, according to data from mortgage finance firm Freddie Mac.
Mortgage rates are expected to rise further after the Federal Reserve raised its benchmark overnight interest rate last week by 25 basis points to a range of 0.50 per cent to 0.75 per cent. The U.S. central bank forecast three rate hikes next year.
The prospect of higher mortgage rates could have pushed undecided buyers into the market, a trend that could persist into early 2017. A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home increased 3 per cent last week from the previous week.
The dollar was trading lower against a basket of currencies after the data, while prices for U.S. government bonds rose. U.S. stocks were little changed, with the Dow Jones industrial average still flirting with the 20,000 mark.
The PHLX housing index rose 0.40 per cent.
Despite last month’s rise, existing home sales remain constrained by a persistent shortage of properties available for sale. Housing is being supported by improving household formation as the tightening labor market improves employment prospects for young adults.
The number of unsold homes on the market fell 8.0 per cent from October to 1.85 million units. Supply was down 9.3 per cent from a year ago and has now declined for 18 straight months on a year-on-year basis.
At November’s sales pace, it would take 4.0 months to clear the stock of houses on the market, down from 4.3 months in October. A six-month supply is viewed as a healthy balance between supply and demand.
The dearth of homes for sale is keeping upward pressure on house prices. The median house price was $234,900 last month, a 6.8 per cent increase from a year ago.
Rising house prices are increasing equity for homeowners and encouraging some to put their homes on the market, but making it more difficult for first-time buyers to purchase homes.