Propelled by Fed rate cut, US existing home sales rise

As the central bank proceeds with a policy of monetary easing, the housing market appears to be picking up momentum.

    Though existing home sales are trending upwards, there are still concerns that supply is not meeting housing demand [Joe Raedle/Getty Images/AFP]
    Though existing home sales are trending upwards, there are still concerns that supply is not meeting housing demand [Joe Raedle/Getty Images/AFP]

    United States home sales rose more than expected in July, boosted by lower mortgage rates and a strong labour market - indicating that the shift towards lower interest rates by the Federal Reserve is already adding support to the economy.

    The National Association of Realtors said on Wednesday that existing home sales rose 2.5 percent to a seasonally adjusted annual rate of 5.42 million units last month.

    Economists polled by the Reuters news agency had forecast existing home sales would rise to a rate of 5.39 million units in July.

    Last month's increase left existing home sales, which make up about 90 percent of all US home sales, higher than they were a year earlier for the first time in 17 months. The home market slipped into a rut last year as the US central bank continued a rate-hiking campaign.

    After raising rates in December, the Fed later signalled it was done with the tightening, and by last month the central bank switched gears completely - slashing rates for the first time since 2008 in a bid to keep a global downturn from causing a recession in the US.

    Favourable economic conditions?

    The July rate cut by the Fed came despite the unemployment rate being at its lowest level in nearly 50 years.

    Meanwhile, the 30-year fixed mortgage rate dropped to an average of 3.77 percent in July, from a seven-year peak of 4.94 percent in November - according to data from mortgage finance agency Freddie Mac.

    The average rate fell further to 3.6 percent last week. Mortgage rates could continue to decline even more, as the Fed is expected to cut rates in September due to concerns about economic weakness.

    Existing home sales have been rising across the US, except in the Northeast region.

    However, there were 1.89 million previously owned homes on the market in July, down from 1.92 million in June - and a 1.6 percent decrease from July 2018.

    At the same time, the median existing house price increased 4.3 percent from a year ago to $280,800 this July.

    With July's sales pace, it would hypothetically take 4.2 months to exhaust the current inventory, down from 4.4 months in June.

    A six-to-seven-month supply is viewed as a healthy balance between supply and demand, meaning that present demand could be outstripping supply.

    June's sales pace was also just revised slightly higher - to 5.29 million units from the previously reported 5.27 million units sold.

    SOURCE: Reuters news agency