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Sales of pre-owned homes soar to three-year high

U.S. home resales rose in July to their highest level in over three years, suggesting a sharp increase in borrowing costs is having only a limited impact on the housing market's recovery. 

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent to an annual rate of 5.39 million units. 

That was well above analysts' expectations and could make the U.S. Federal Reserve more comfortable with its plans to wind down a major economic stimulus program. 

Expectations the U.S. central bank will begin tightening policy next month have pushed interest rates on mortgages sharply higher, but home buyers appeared undeterred in July. 

"The basic take-away is that the rise in mortgage rates has been manageable," said Ryan Sweet, an economist with Moody's Analytics in West Chester, Pennsylvania. 

Indeed, some home buyers might be rushing to make purchases now ahead of further rate hikes, said Millan Mulraine, an economist at TD Securities in New York. 

"Given this, we expect to see some moderation in activity in the coming months, as higher mortgage rates take some of the air from the recovery," Mulraine said. 

After being devastated by a financial crisis and the 2007-09 recession, the U.S. home market appeared to turn a corner early last year, helped by steady job creation and extremely low interest rates. 

July's increase marked the fastest pace of sales since November 2009, when a home buyer tax credit was expiring. 

Since early May, mortgage rates for 30-year loans have risen more than a percentage point. 

Last week, the average rate for a 30-year mortgage rose 12 basis points to 4.68 percent, the Mortgage Bankers Association said in a report on Wednesday. 

The higher rates are already making it harder for people to refinance their loans. The MBA said applications for U.S. home loans fell 4.6 percent in the week ended August 16. as refinancing activity slumped. 

The Fed currently buys $85 billion a month in bonds in an effort to reduce borrowing costs. Policymakers are expected to reduce monthly purchases next month, and financial markets were awaiting for clues on this from the minutes of the Fed's minutes for its most recent meeting later on Wednesday. 

The data appeared to have little impact on Wall Street. U.S. Treasury prices were little changed amid caution ahead of the release of the Fed's minutes. Stock prices fell slightly. 

Economists polled by Reuters had expected sales to increase to a 5.15 million unit pace in July. Sales rose in all four major regions in the country. 

The housing market recovery, marked by a surge in prices and dwindling inventories, is helping to shore up the economy by bolstering household finances and supporting consumer spending. 

This helped Lowe's Cos Inc report on Wednesday that it posted a bigger-than-expected rise in quarterly profit and sales. The news came the day after larger rival Home Depot Inc also reported strong results. 

A stronger overall economy is also helping home owners avoid foreclosure. 

The NAR said distressed properties - which include short sales and foreclosures - accounted for only 15 percent of sales last month. That matched June's reading, which was the lowest since the realtors group started monitoring them in October 2008. 

The median price for a previously owned home soared 13.7 percent from a year ago to $213,500. The inventory of unsold homes on the market rose 5.6 percent, leaving the months' supply unchanged at 5.1.