Ahead of the Bell: US home sales

US home sales likely increased in December; 2014 activity still below 2013 sales totals

Associated Press

WASHINGTON (AP) -- The National Association of Realtors reports on sales of existing homes in December. The report is scheduled to be released Friday at 10 a.m. Eastern.

SALES GROWTH: Economists forecast that sales rose 2.4 percent to a seasonally adjusted annual rate of 5.05 million homes last month, according to a survey by data firm FactSet. Purchases plunged 6.1 percent to 4.93 million in November.

Overall sales slipped below 5 million in 2014 as prospective buyers were priced out of the market. At the same time, investment activity slowed as home values steadily approached levels last seen before the housing bubble burst in 2006. Analysts say annual sales of 5.5 million are common in a healthy housing market.

STRONGER 2015: Home-buying appears poised to improve, however. Strong job growth over the past year has added three million new paychecks to the economy, mortgage rates have plunged and home values have risen at a slower clip compared with previous years, giving prospective buyers some leeway.

The association believes that sales will rise 8 percent this year to 5.3 million homes. Much of that growth will hinge on first-time buyers getting out of the rental market. First-time buyers accounted for only 31 percent of home sales in November, down from the historical average of 40 percent.

Analysts expect the resilient U.S. economy to provide a tail wind this year, too. Employers added an average of 246,000 jobs a month last year as the unemployment rate dropped from 6.7 percent to 5.6 percent. While average hourly wages grew only slightly faster than inflation, the additional number of paychecks coupled by younger workers who are starting to move up the career ladder should put more first-time buyers in a better position.

Borrowing costs have also plunged. With growing signs of a weakened global economy, investors have sought to shelter their money in U.S. Treasurys. That has pushed down bond yields and mortgage rates. The average 30-year mortgage rate has dipped to 3.63 percent from 4.39 percent a year ago, the mortgage company Freddie Mac said Thursday.

That decline translates into savings about $880 a year in mortgage payments for a $210,000 house. Rates have remained low even though the Federal Reserve in October ended its monthly bond purchases, which were meant to hold down long-term rates.

A slowing rate in the growth of housing values will likely also help sales. Home values surged at a double-digit pace nationwide in 2013, pricing out many would-be buyers in 2014. Annual price growth has now slowed to 4.5 percent, as measured by the Standard & Poor's/Case-Shiller index, allowing more buyers back into the market.

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