WASHINGTON (Reuters) - U.S. home resales jumped in July to their highest level in over three years, suggesting a sharp increase in borrowing costs is having only a limited impact on the housing market’s recovery.
The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent to an annual rate of 5.39 million units.
That was above analysts’ expectations and could make the Federal Reserve more comfortable with its plans to wind down a major economic stimulus program. Plans to end the program have already pushed mortgage rates higher.
While some of July’s surge in home resales may reflect buyers rushing to lock in rates before they rise further, the data inspired some confidence that the housing recovery was strong enough to withstand higher borrowing costs.
“The basic take-away is that the rise in mortgage rates has been manageable,” said Ryan Sweet, an economist with Moody’s Analytics in West Chester, Pennsylvania.
After being devastated by a financial crisis and the 2007-09 recession, the U.S. home market appeared to turn a corner early last year, helped by steady job creation and extremely low interest rates.
July’s increase marked the fastest pace of sales since November 2009, when a home buyer tax credit was expiring. Such a strong rate of growth could prove temporary, however.
Applications for mortgages to buy homes rose slightly last week but have fallen sharply since the spring and remain near a seven-month low, a separate report from the Mortgage Bankers Association showed.
“We expect to see some moderation in activity in the coming months, as higher mortgage rates take some of the air from the recovery,” said Millan Mulraine, an economist at TD Securities in New York.
Since early May, mortgage rates for 30-year loans have risen more than a percentage point. Last week, the average rate for a 30-year mortgage climbed 12 basis points to 4.68 percent while refinancing activity slumped, the MBA said.
The Fed currently buys $85 billion a month in bonds but is expected to throttle back purchases in September. Financial markets were waiting for clues on this from the minutes of the Fed’s most recent meeting, which were due later on Wednesday.
The housing data appeared to have little impact on Wall Street. U.S. Treasury prices dipped ahead of the release of the Fed’s minutes, while stock prices also fell slightly.
Economists polled by Reuters had expected home resales to increase to a 5.15 million unit pace in July.
The housing market recovery, marked by a surge in prices and dwindling inventories, is helping to shore up the economy by bolstering household finances and supporting consumer spending.
This helped Lowe’s Cos Inc. report on Wednesday that it posted a bigger-than-expected rise in quarterly profit and sales. The news came a day after larger rival Home Depot Inc. also reported strong results.
Luxury home builder Toll Brothers Inc. on Wednesday reported a 24 percent rise in quarterly revenue as its clients appeared undeterred by rising mortgage rates.
A stronger overall economy is also helping home owners avoid foreclosure.
The NAR said distressed properties - which include short sales and foreclosures - accounted for only 15 percent of sales last month. That matched June’s reading, which was the lowest since the real estate group started monitoring them in October 2008.
The median price for a previously owned home soared 13.7 percent from a year ago to $213,500. The inventory of unsold homes on the market rose 5.6 percent, for an unchanged 5.1. months’ supply.
Additional reporting by Richard Leong in New York; Editing by Chizu Nomiyama and Dan Grebler