Home sales rose broadly in November, as demand for housing offset higher mortgage costs in the shadow of the Fed’s second rate hike in a decade.
U.S. home sales rose more than expected in November, even as construction activity ran into volatility, a sign that stronger earnings and more plentiful jobs were offsetting a sharp rise in mortgage rates.
The sale of previously-owned homes edged up 0.7% in November to an annual rate of 5.61 million, the National Association of Realtors (NAR) reported last month. That was the highest level since February 2007 and defying forecasts for a 1% drop. The gains were largely attributed to a healthy labor market and anticipation of some buyers to secure a home while rates were still near rock bottom.
The median sales price for an existing home in November was $234,900, up 6.8% from year-ago levels.
New home sales, a more volatile segment of the market that accounts for less than 10% of total transactions, rose 5.2% to a seasonally adjusted annual rate of 592,000 in November, the Commerce Department said. Sales were up 16.5% from November 2015.
Despite rising sales, November may have signaled the onset of renewed volatility in the market. The period between Donald Trump’s election victory on November 8 and the Federal Reserve’s first interest rate increase of the year on December 14 coincided with a sharp rise in mortgage rates. By the end of 2016, rates had risen for 13 consecutive weeks to reach the highest level since 2014.
Benchmark 30-year fixed-rate mortgages rose to an average of 4.32% in the week ended December 29, Freddie Mac reported. The average for a 15-year fixed-rate mortgage climbed to 3.55% from 3.52%. Rates on adjustable five-year mortgages fell slightly to 3.30% from 3.32%, the first drop since October.
The quick ascension of mortgage rates may have already impacted contract activity, according to NAR’s pending home sales index. Pending home sales, a forward-looking indicator based on contracting signings, fell 2.5% from October, pushing the index 0.4% below year-ago levels.
Volatility was also observed in the construction sector, as U.S. homebuilding plunged more than expected in November. Groundbreaking for new homes declined 18.7% to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said. October starts were revised up to a 1.34 million-unit pace, the highest in more than nine years.
The sharp drop in starts was widely anticipated since October’s surge in home building widened the gap between permits and starts. Building permits, a bellwether of future construction plans, declined 4.7% in November to an annual rate of 1.2 million, official data showed.
Investors will be keeping a close eye on December housing data now that the Fed has raised rates and signaled a faster pace of tightening over the next two years. The last time mortgage rates rose this quickly was back in 2013, and the housing recovery slowed momentarily.
The incoming Republican administration is said to favor economic policies that will stoke faster inflation, which could result in an even faster pace of tightening than the Fed implied last month. Donald Trump will be sworn in as President at a time when consumer inflation expectations are on the rise thanks to a monthlong rally in oil prices  following OPEC’s decision to cut crude supplies by 1.2 million barrels per day. Oil prices would later spike to 18-month highs after Russia and ten other countries agreed to cut output by 558,000 barrels per day. The cuts are expected to start in January.
 National Association of Realtors (December 21, 2016). Existing-Home Sales Forge Ahead in November.
 Reuters (December 23, 2016). “US new home sales total 592,000 in Nov vs 575,000 sales expected.” CNBC.
 Freddie Mac. Mortgage Market Survey Archive.
 National Association of Realtors (December 28, 2016). “Pending Home Sales Backpedal in November.”
 CNBC (December 16, 2016). “US housing starts total 1.09M in Nov vs 1.23M starts expected.”
 Joseph Lavorgna (December 15, 2016). “Oil price rally driving US inflation expectations.” The Hill.