Last updated: February 21, 2013 3:53 pm

US home sales rise as inventories shrink

The inventory of unsold homes in the US dropped to a 13-year low in January as buyers returned to the market, pushing sales of previously owned homes slightly higher.

Meanwhile, the cost of living was unchanged for a second month as flat food prices and lower energy costs offset other mild inflationary pressures, while jobless claims rose more than expected last week.

The number of existing homes available for sale dropped 4.9 per cent from December to 1.74m in January – the lowest level since December 1999, the National Association of Realtors said. That represented 4.2 months of inventory at the current sales rate, the lowest since April 2005. Inventory had previously hit an 11-year low in December.

Even with fewer properties available, sales rose 0.4 per cent last month to a seasonally adjusted annual rate of 4.92m, above a forecast 4.9m. Sales were 9.1 per cent higher than the 4.51m pace reached in January 2012.

“Buyer traffic is 40 per cent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country,” said Lawrence Yun, NAR chief economist.

Gradual but steady gains in the job market and record-low mortgage rates have helped lure buyers back into the market after years of stagnation. Housing added to US economic growth in 2012 for the first time since 2005, and is expected to be a stronger driver this year.

As inventories decline, prices have risen, with the median price of an existing home at $173,000 in January, up 12.3 per cent from a year ago.

Sales of homes in foreclosure and other distressed properties continued to make up a significant portion of the market, at 23 per cent compared with 24 per cent in December, but were down from 35 per cent of all sales in January 2012.

Also on Thursday, the labour department said its consumer price index was unchanged in January from the previous month, following a similar flat reading in December. Economists polled by Bloomberg had called for a 0.1 per cent rise.

Petrol prices dropped 3 per cent over the month, contributing to a 1.7 per cent decline in the energy index. Food prices were unchanged after rising for 10 straight months.

Stripping out volatile food and fuel costs, core prices rose a stronger than expected 0.3 per cent, the most since May 2011. Forecasts had called for a 0.2 per cent increase, following a 0.1 per cent gain in December.

Apparel prices rose 0.8 per cent, airline fares rose 1.1 per cent, and the price of shelter gained 0.2 per cent.

On a yearly basis, core prices rose 1.9 per cent – near the Federal Reserve’s 2 per cent target. Overall prices were 1.6 per cent higher than a year ago, the smallest annual increase since July.

“If you needed a reminder that inflation is not worth worrying about, then US February CPI data did just that,” said Rob Carnell, economist at ING. “At 1.6 per cent [year on year], headline inflation is neither too high, nor worryingly low.”

The Fed has said it is not yet worried about inflation and will keep interest rates near zero until the unemployment rate falls to 6.5 per cent.

Jim Baird, chief investment strategist for Plante Moran Financial Advisors, said: “Inflation remains a backburner problem, trumped by slow growth and the lacklustre job market. If the Fed is looking for evidence to keep their foot to the floor on policy, they are still getting it.”

Meanwhile, more Americans filed for unemployment benefits last week, but the longer-term trend continued to show gradual improvement in the labour market.

First-time claims for jobless benefits rose 20,000 to a seasonally adjusted 362,000, above estimates of 355,000.

Jill Brown and Jonathan Basile of Credit Suisse noted that “four states had been estimated due to the President’s Day holiday and as per the usual holidays tend to cause a lot of noise in the numbers”.

The four-week average of new claims, considered a more reliable measure that strips out weekly volatility, was little changed at 361,750.

Economists will be looking to the February non-farm payrolls data, due to be released on March 8, for a sign of whether employers are adding more workers.

“Remember that claims tell only half the labour market story, and indicators of the pace of hiring are very mixed,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

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