Pending sales of U.S. existing homes climb to nine-year high

WASHINGTON – Contracts to purchase previously owned U.S. homes rose in May to a nine-year high, indicating recent strength in the real-estate industry will be sustained.

The pending home sales index increased 0.9 percent to 112.6, the highest since April 2006, after a revised 2.7 percent advance in the previous month, the National Association of Realtors said Monday in Washington. The median projection in a Bloomberg survey of economists called for the gauge to climb 1 percent.

Employment growth, a pickup in incomes and relatively low borrowing costs are helping lure buyers, including those making their first foray into the market. Progress in residential real estate and more construction will further fuel the economy after a weak start to the year.

‘The housing data all seem to be generally pointing in the upward direction,’’ said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, whose forecast matched the Bloomberg survey median. “The labor market is going to help it a lot.”

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Estimates in the Bloomberg survey of 40 economists forecasting pending home sales ranged from a 2 percent decline to a 4 percent increase. The Realtors’ group revised the April data from an initially reported 3.4 percent gain.

Last year

Purchase contracts rose 8.3 percent in the 12 months ended in May, on an unadjusted basis, after a 12.6 percent gain in April, the NAR report showed.

A reading of 100 in the pending sales gauge corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

Pending sales climbed in two of four regions, led by a 6.3 percent increase in the Northeast. Purchase contracts rose 2.2 percent in the West.

“The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” NAR chief economist Lawrence Yun said in a statement.

Economists consider pending sales a leading indicator because they track new purchase contracts. The Realtor group’s existing-home sales data are tabulated when a deal closes, usually a month or two later.

Those re-sales, which make up about 90 percent of the market, rose 5.1 percent in May to a 5.35 million annualized rate, the fastest pace since November 2009, NAR data showed last week. The share of first-time buyers matched the highest level since September 2012.

Home construction

As demand picks up, builders are responding. While May housing starts declined 11.1 percent to a 1.04 million annualized rate, it followed a revised 1.17 million pace in April and capped the best back-to-back readings since late 2007, according to Commerce Department figures. Permits for future projects rose to the highest level in almost eight years.

Relatively low borrowing costs are still supporting would- be buyers who can qualify for credit. The average rate for a 30-year fixed mortgage was 4.02 percent in the week ended June 25, according to data from McLean, Va.-based Freddie Mac. While that’s the second-highest rate this year, it’s below the average 4.17 percent for all of 2014.

Sustained job gains and signs of a pickup in wage growth are helping to keep homebuilders and home-improvement retailers upbeat about business prospects.

“Our industry is driven by both income and housing,” Robert Hull, chief financial officer at home-improvement retailer Lowe’s Cos., said at a June 24 conference. “We’re seeing solid progress on jobs creation. We’re also starting to see some good movement on wage increases.”

Labor market

Payrolls rose by 280,000 in May, the biggest increase in five months, according to the Labor Department. So far this year, job gains have averaged 217,400 a month after 259,670 in 2014. The Labor Department is set to report June figures on July 2.

Some indicators have shown an emergence of stronger pay growth. Private wages, which exclude government workers, rose 2.8 percent in the first quarter from the same three months in 2014, the fastest since 2008, the Labor Department’s April 30 report on employment costs showed.

The agency’s monthly employment report showed a more moderate 2.3 percent gain in average hourly earnings in May from a year earlier. While that was the strongest since August 2013, it’s still close to the 2 percent average since the start of the expansion.

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