US home resales unexpectedly fell in July to an 11-month low as a chronic shortage of properties boosted prices, the latest sign that the housing market recovery was slowing. The cooling in housing activity reflects supply constraints rather than ebbing demand, which is being driven by a strong labor market. Other data on Thursday showed a slight increase in the number of people filing for unemployment benefits last week.
"Housing is far from being the economy's growth star," said Michael Gregory, deputy chief economist at BMO Capital Markets in Toronto. "It's not even a major supporting actor." The National Association of Realtors said existing home sales fell 1.3 percent to a seasonally adjusted annual rate of 5.44 million units last month. That was the lowest level since August 2016. Sales rose 2.1 percent on a year-on-year basis.
Economists had forecast sales gaining 0.9 percent to a rate of 5.57 million units last month. The NAR report followed data on Wednesday showing a 9.4 percent drop in sales of new single-family homes in July and the second weekly fall in applications for home purchase loans. Data this month also showed a dive in homebuilding and permits in July. Taken together, the reports suggest housing could remain a drag on economic growth in the third quarter. Housing subtracted nearly three-tenths of a percentage point from gross domestic product in the second quarter.
Despite the housing slowdown, economists expect the Federal Reserve to outline a plan to begin unwinding its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its September 19-20 policy meeting. Fed officials are focused on the labor market and inflation. With inflation continuing to undershoot its 2 percent target even as the labor market nears full employment, the US central bank is, however, likely to hold off raising interest rates again until December.
The Fed has increased borrowing costs twice this year. The PHLX index of housing stocks was little changed as were shares in the nation's largest homebuilder, D.R. Horton. Shares of Lennar Corp fell 0.4 percent while those of Pultegroup advanced 0.4 percent. The overall US stock market was trading lower.
Prices of US Treasuries also fell. The dollar was slightly higher against a basket of currencies. The housing market has experienced an acute shortage of homes for sale for about two years. Builders have been unable to fill the inventory gap, citing a lack of land and skilled labour.
They have also complained of being constrained by expensive building materials. Last month, there were 1.92 million previously owned houses on the market, down 9.0 percent from a year ago. Housing inventory has dropped for 26 straight months on a year-on-year basis. The median house price was $258,300 in July, a 6.2 percent rise from a year ago. That marked the 65th straight month of year-on-year price increases.
In contrast, annual wage growth has struggled to break above 2.5 percent, locking out many first-time homebuyers from the market. They accounted for a third of transactions last month, well below the 40 percent share that economists and realtors say is needed for a robust housing market. At July's sales pace, it would take 4.2 months to clear inventory, down from 4.8 months one year ago. Economists view a six-month supply as a healthy balance between supply and demand.
Sales fell in the Northeast and Midwest but rose in the West and South. Economists say builders have mostly focused on the high end of the market, but that may change if the strengthening labour market, as expected, keeps housing demand elevated. In a separate report on Thursday, the Labour Department said initial claims for state unemployment benefits increased 2,000 to a seasonally adjusted 234,000 for the week ended August 19.
Claims have now been below 300,000, a threshold associated with a robust labour market, for 129 consecutive weeks. That is the longest such stretch since 1970, when the labour market was smaller. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, fell 2,750 to 237,750 last week, the lowest level since May. Low numbers of layoffs have helped reduce the unemployment rate to a 16-year low of 4.3 percent. The unemployment rate has fallen five-tenths of a percentage point this year.
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