By Ben Leubsdorf
Homebuying activity increased in November to the strongest sales pace in nearly a decade, though rising prices and mortgage rates could pressure the U.S. housing sector in the new year.
Purchases of previously owned homes, which account for the vast majority of U.S. sales, edged up 0.7% from October to a seasonally adjusted annual rate of 5.61 million last month, the National Association of Realtors said Wednesday. That was the third straight monthly rise, beating economists' expectations for a modest November decline, and the strongest sales rate since February 2007.
But prices continued to rise as inventory stayed tight, crimping affordability for many would-be buyers as mortgage rates march higher.Those forces could depress sales as the spring buying season approaches.
"We do expect some tapering off of home sales in 2017," said Lawrence Yun, the Realtor group's chief economist.
Sales in November rose 15.4% compared with the same month a year earlier. The annual gain was exaggerated by a one-off plunge in sales during November 2015 that the NAR had blamed on new federal mortgages rules delaying closings.
First-time home buyers represented 32% of November sales. Some 21% of sales last month were all-cash deals. Distressed sales -- foreclosures and short sales -- accounted for 6% of last month's purchases, the trade group said.
News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.
Tight supply remains a major worry, driving price gains that have outpaced growth in household incomes. At the current sales pace, it would take only four months to exhaust the supply of existing homes on the market. The median sales price last month was $234,900, rising 6.8% from a year earlier.
Residential construction has remained subdued despite broader economic growth. Permits issued for new housing units were up just 1.1% in the first 11 months of the year compared with the same period in 2015, with solid growth for single-family homes offset by weakness in the multifamily segment, the Commerce Department said last week.
Sales of newly built single-family homes, which account for only about 10% of U.S. home purchases, rose 12.7% in the first 10 months of 2016 compared with a year earlier, according to Commerce Department data.
After years of low interest rates that have supported homebuying activity and price growth, borrowing costs have climbed sharply since the Nov. 8 presidential election.
The Federal Reserve has also moved forward with its plan to gradually boost short-term interest rates as a tightening labor market is expected to put upward pressure on inflation. The U.S. central bank last week raised its benchmark federal-funds rate for just the second time since the 2007-09 recession.
The average rate on a 30-year fixed-rate mortgage in November was 3.77%, up from 3.47% the prior month, according to Freddie Mac. Rates have risen further in December, with Freddie Mac reporting last week that the average was 4.16%, the highest reading in more than two years.
"We remain attuned to any signs that housing demand is slowing in result of the backup in interest rates and would expect any such effect to show in the data in early 2017," Barclays economist Michael Gapen said in a note to clients.
Write to Ben Leubsdorf at email@example.com
(END) Dow Jones Newswires
December 21, 2016 12:29 ET (17:29 GMT)
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