Housing recovery in U.S. back on track

A fourth straight monthly increase in sales of existing homes provided the latest evidence Thursday that the U.S. housing market is rebounding from a weak start to the year.

Housing has been a drag on an otherwise strengthening economy, in part because a harsh winter delayed many sales. But Americans are stepping up purchases as more homes have been put up for sale. And low mortgage rates and moderating price gains have made homes more affordable.

"The momentum is in the right direction," said Andrew Labelle, an economist at TD Bank who noted that the past four months have marked the fastest four-month sales gain since 2011. "Sustained jobs gains, as well as the fall in mortgage rates since the beginning of the year, appear to have unleashed at least some pent-up demand."

Sales of existing homes rose 2.4 percent in July to a seasonally adjusted annual rate of 5.15 million, the National Association of Realtors said Thursday. That was the highest annual rate since September of last year.

The increase follows other encouraging signs that the housing market is improving. The pace of home construction starts surged 15.7 percent in July to a seasonally adjusted annual rate of 1.1 million homes, the government said this week. Applications for building permits, a gauge of future activity, also strengthened last month.

And a survey of home builders released Monday showed that they were more confident about future sales.

The encouraging readings contrast with reports earlier this year, when weak sales and limited building led economists to characterize housing as a faltering piece of the economic recovery. Federal Reserve Chair Janet Yellen and Vice Chairman Stanley Fischer had pointed to housing as an economic weak spot.

Economists noted that housing still hasn't fully recovered from its slowdown earlier this year. The annual sales pace remains 4.3 percent below last July's rate. And construction has merely returned to its pace in October; it has yet to exceed it.

Yet economists say they're encouraged by signs that the latest sales gains are sustainable.

Stephanie Karol, an economist at IHS Global Insight, said a "virtuous cycle" is emerging: More homeowners are listing their properties for sale. A greater supply of homes then encourages more potential buyers to take the plunge. And that, in turn, helps sustain modest price gains, which lead more people to sell.

"This is exactly the sort of pattern we want to see," Karol said.

The number of homes for sale rose 3.5 percent in July from June to 2.37 million, the most in nearly two years.

Affordability is improving. The median price slipped a bit in July from June to $222,900, the Realtors said. Though that was still 4.9 percent more than a year ago, year-over-year price gains have slowed.

And the average rate for a 30-year mortgage fell to 4.1 percent this week, the lowest level this year, according to mortgage giant Freddie Mac. At the start of the year, the average rate was 4.53 percent.

A study released Thursday by data provider Zillow found that home buyers paid just 15.3 percent of their incomes on the mortgage for a typical home at the end of the April-June quarter. That's much lower than the 22.1 percent share during the housing bubble that ended in 2006.

The Realtors report also showed that healthy sales make up a rising share of purchases. Fewer home sales stem from foreclosures or involve homes for which the seller owed more on their mortgage than the home was worth.

Those "distressed" sales made up just 9 percent of sales in July — the lowest proportion since the Realtors began tracking the figure in October 2008. Distressed sales, which tend to drag down neighborhood prices, had made up 36 percent of sales in 2009.

Many distressed sales were made to investors, including private equity firms. They bought large numbers of homes and drove up overall sales in 2011 and 2012.

Ron Peltier, CEO of HomeServices America, a real estate brokerage affiliated with Berkshire Hathaway, noted that those sales weren't sustainable.

"We were seeing sales in clumps," he said. "Now we're seeing sales the good old-fashioned way: One at a time."

First-time home buyers made up 29 percent of sales in July, up slightly from June and the second straight gain. Still, that's well below the typical figure of 40 percent. First-time buyers are critical to a housing recovery, in part because they enable homeowners seeking to buy larger homes to sell.

First-time buyers are likely benefiting from strong job gains. Hiring since February has reached its healthiest pace since 2006. But first-timers also face higher credit standards and down-payment requirements, making it harder for many to qualify for mortgages.