US home sales rise to 17-month high in August

Economists polled by Reuters had expected a decline in existing home sales

Cyclists look at the San Francisco skyline. A decline in mortgage rates in the US has helped buyers to fund purchases. Bloomberg.

US home sales unexpectedly rose to a 17-month high in August for a second straight month of gains, the latest sign that lower mortgage rates are encouraging buyers off the sidelines.

The National Association of Realtors said on Thursday existing home sales increased 1.3 per cent to a seasonally-adjusted annual rate of 5.49 million units last month. July's sales pace was unchanged at 5.42 million units.

Economists polled by Reuters had forecast existing home sales would decline 0.4 per cent to 5.37 million units. Existing home sales make up about 90 percent of US home sales.

A decline in mortgage rates throughout much of the summer has helped buyers. The US Federal Reserve cut interest rates for the first time in more than a decade in July and lowered borrowing costs again on Wednesday.

The 30-year fixed mortgage rate has dropped to around 3.5 per cent from a more than seven-year peak of about 4.94 per cent in November, according to data from mortgage finance agency Freddie Mac. Buyers are also benefitting from an economy with low unemployment, rising wages and slower house price inflation.

But home sales overall have see-sawed on a monthly basis for much of this year as the industry continues to struggle with a lack of supply, especially for cheaper homes.

Land and labour shortages have also curtailed building although there have been recent signs of easing. On Wednesday, data showed US homebuilding surged to a more than 12-year high in August as both single- and multi-family housing construction accelerated.

"Having the mortgage rates low for several consecutive months, this is enticing buyers back into the market," said NAR chief economist Lawrence Yun.

Existing home sales rose 2.6 per cent from a year ago, NAR said, which was the second consecutive month of year-on-year gains. Across the nation's four regions, all saw growth from a year ago.

The median existing house price increased 4.7 per cent from a year ago to $278,200 in August. There were 1.86 million homes on the market in August, a decline of 2.6 per cent from a year ago.

At August's sales pace, it would take 4.1 months to clear the current inventory, down from 4.3 months one year ago. A supply of six to seven months is viewed as a healthy balance between supply and demand.