Home-Sales Winning Streak Ends, First-Time Buyers Go Missing

A three-year winning streak for sales of previously owned homes in the U.S. ended in 2014 as some investors stepped out of the market and first-time buyers failed to fill the void. Purchases totaled 4.93 million last year, down 3.1 percent from the 5.09 million houses sold in 2013, figures from the National Association of Realtors showed Friday in Washington. The share of American homebuyers making their first purchase dropped in 2014 to its lowest level in almost three decades, according to the Realtors group. At the same time, employment gains, growing consumer confidence, mortgage rates at historically low levels and government efforts to lower purchasing costs probably will help bolster demand in 2015. “Demand has been pretty sideways,” said Jay Feldman, an economist at Credit Suisse in New York. “There are various positives and I don’t see any big negatives for housing. The improving labor market and low mortgage rates will support the housing recovery.” Stocks fell, trimming the first weekly gain of 2015, as weaker-than-forecast results at companies from United Parcel Service Inc. to Kimberly-Clark Corp. offset confidence that central banks will support global growth. The Standard & Poor’s 500 Index declined 0.6 percent to 2,051.82 at the close in New York. The S&P Homebuilding Supercomposite Index retreated 1 percent. Survey Results Purchases climbed a less-than-forecast 2.4 percent in December from the prior month to a 5.04 million annual rate, the report showed. The median forecast of 76 economists in a Bloomberg survey called for sales of previously owned homes to rise to a 5.08 million pace in December. Estimates ranged from 4.93 million to 5.25 million. The November reading was revised down to 4.92 million from a previously reported 4.93 million. First-time buyers accounted for 29 percent of all purchases in December, down from 31 percent a month earlier, the report showed. A separate survey from the group showed they made up 33 percent for all of 2014, the fewest since 1987. “First-time buyers are still missing in action,” Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released. The market in 2014 was “mildly disappointing.” Falling interest rates, more jobs and higher levels of confidence indicate “pent-up demand continues to build,” he said. “2015 should be a better year.” Supply, Prices A lack of supply and rising prices are probably among reasons younger and first-time buyers have yet to enter the market. Those issues are also driving out investors, who led the early stages of the recovery. The median price of an existing home advanced 6 percent in December from the same period a year earlier, to $209,500, the Realtors’ report showed. In 2014, it was the highest in seven years. The number of previously owned homes on the market fell to 1.85 million, the second-smallest reading for any December since 1999. Investors made up 17 percent of all buyers in December, down from 21 percent in the same month in 2013. Another report Friday showed prospects for economic growth were improving. The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, increased 0.5 percent in December, after a revised 0.4 percent gain in November, the New York-based group said. An improving job market and plunging gasoline prices continue to support consumer spending that makes up almost 70 percent of the economy. A strong domestic market is buffering the U.S. against global weakness as Federal Reserve policy makers prepare to meet next week to discuss if and when to raise interest rates. Rosier Outlook It’s “more or less consistent with our expectation for continued expansion as we turn the corner here into 2015,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who’s among the top LEI forecasters over the past two years, according to data compiled by Bloomberg. “If there’s something that has shifted over the last year or so, it’s that the consumer spending outlook is a little bit brighter.” More jobs and a drop in mortgage rates will help. The labor market is coming off its best year since 1999, with almost 3 million jobs added and an unemployment rate of 5.6 percent, a more than six-year low. The average rate on a 30-year fixed mortgage was 3.63 percent in the week ended Jan. 22, according to data from Freddie Mac in McLean, Virginia. It reached a low of 3.31 percent in November 2012. Easier Credit Credit conditions continue to ease. The proportion of banks reporting loosening standards for prime mortgages in the past two quarters was the highest since the Fed began record-keeping in 2007, according to the central bank’s October survey of senior loan officers. The federal government is also trying to make it cheaper to buy. President Barack Obama unveiled a plan earlier this month aimed at boosting homeownership for borrowers with lower credit scores by reducing the premiums they pay on Federal Housing Administration mortgages. The agency’s loans are meant for lower-income borrowers, who have been largely shut out of the housing recovery. The move, which will go into effect on Jan. 26, would help the typical first-time homebuyer save about $900 in their annual loan payment, according to the FHA. Minneapolis-based U.S. Bancorp (USB), the nation’s largest regional lender, is among companies encouraged by the recovery in housing. Chief Executive Officer Richard Davis said the outlook for the mortgage business is “really nice,” in part because Americans are putting money into home improvements. Home Improvements “People who have houses now feel that they’re no longer under water and they’re willing to invest in them,” he said during an earnings call on Jan. 21. “People who have houses that are now above water are willing to use it as collateral for something else, like a small business, and housing prices slowly but surely are recovering.” While increasing property values hurt affordability for some prospective buyers, they give homeowners the ability to sell their dwellings, which will help boost supply. To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle