WASHINGTON (MarketWatch) — Sales of new homes slumped in July with each region seeing sizeable drops, raising questions about the recovery in the housing market.
New-home sales fell 13.4% to a seasonally adjusted annual rate of 394,000 in July, the lowest rate since October, the U.S. Department of Commerce reported Friday. Rising mortgage rates may be behind July’s drop, though the monthly data are quite volatile and economists had expected some pull back after sales gains in recent months.
Longer-term trends point to continuing growth: new-home sales in July were up 6.8% from the year-earlier period.
“This was an unambiguously weak report, and it reflects in part some of the negative impact of higher mortgage rates,” said Millan Mulraine, director of U.S. research and strategy at TD Securities.
Economists polled by MarketWatch had expected a July sales rate of 485,000, compared with an original June estimate that pegged the rate at 497,000.
On Friday the government revised June’s rate to 455,000. An exchange-traded fund following home builders, the SPDR S&P Homebuilders ETF XHB -1.39% , fell by 1.7% Friday morning.
By region, monthly sales fell 16.1% in the West, 13.4% in the South, 12.9% in the Midwest and 5.7% in the Northeast.
Earlier this week, a report from the National Association of Realtors showed that existing-home sales in July jumped to their highest level since late 2009, as buyers looked to lock in mortgage rates before they rise further.
Taken together, the data on sales of new and existing homes illustrate a market that continues to post year-over-year growth thanks to pent-up demand and relatively low interest rates.
Indeed, economists expect residential investment to continue to contribute to economic growth this year.However, there’s concern about the bite that rising rates will take out of demand.
Since early May, the average rate for the 30-year fixed-rate mortgage has increased more than one percentage point.
As the Federal Reserve starts winding down its massive bond-buying program, a tapering that could start this year, rates will continue to rise, forcing would-be buyers to scale back purchase plans. Rising rates aren’t the only headwinds facing consumers and builders.
Slow employment growth is also hampering sales as buyers are wary of forming new households. Also, relatively low inventories are heating up competition and prices, making it tough for first-time owners to participate in the market.
Also Friday, the government reported that the median price of new homes ticked down to $257,200 last month, but was up 8.3% from the year-earlier period.
The supply of new homes on the U.S. market in July jumped to 5.2 months at the current sales pace — the highest since January 2012 — from 4.3 months in June.
“The sharply weaker than expected sales in July was the lowest so far this year, and could be a sign that higher interest rates really are affecting the U.S. housing recovery.
Certainly, with the number of homes for sale rising and months’ supply increasing to 5.2, from 4.3, the decline certainly seems to be more of a demand than a supply issue,” wrote Andrew Grantham, an economist at CIBC World Markets, in a research note. Despite annual growth, new-home sales remain far below a peak rate of almost 1.4 million in 2005.
marketwatch.com
New-home sales fell 13.4% to a seasonally adjusted annual rate of 394,000 in July, the lowest rate since October, the U.S. Department of Commerce reported Friday. Rising mortgage rates may be behind July’s drop, though the monthly data are quite volatile and economists had expected some pull back after sales gains in recent months.
Longer-term trends point to continuing growth: new-home sales in July were up 6.8% from the year-earlier period.
“This was an unambiguously weak report, and it reflects in part some of the negative impact of higher mortgage rates,” said Millan Mulraine, director of U.S. research and strategy at TD Securities.
Economists polled by MarketWatch had expected a July sales rate of 485,000, compared with an original June estimate that pegged the rate at 497,000.
On Friday the government revised June’s rate to 455,000. An exchange-traded fund following home builders, the SPDR S&P Homebuilders ETF XHB -1.39% , fell by 1.7% Friday morning.
By region, monthly sales fell 16.1% in the West, 13.4% in the South, 12.9% in the Midwest and 5.7% in the Northeast.
Earlier this week, a report from the National Association of Realtors showed that existing-home sales in July jumped to their highest level since late 2009, as buyers looked to lock in mortgage rates before they rise further.
Taken together, the data on sales of new and existing homes illustrate a market that continues to post year-over-year growth thanks to pent-up demand and relatively low interest rates.
Indeed, economists expect residential investment to continue to contribute to economic growth this year.However, there’s concern about the bite that rising rates will take out of demand.
Since early May, the average rate for the 30-year fixed-rate mortgage has increased more than one percentage point.
As the Federal Reserve starts winding down its massive bond-buying program, a tapering that could start this year, rates will continue to rise, forcing would-be buyers to scale back purchase plans. Rising rates aren’t the only headwinds facing consumers and builders.
Slow employment growth is also hampering sales as buyers are wary of forming new households. Also, relatively low inventories are heating up competition and prices, making it tough for first-time owners to participate in the market.
Also Friday, the government reported that the median price of new homes ticked down to $257,200 last month, but was up 8.3% from the year-earlier period.
The supply of new homes on the U.S. market in July jumped to 5.2 months at the current sales pace — the highest since January 2012 — from 4.3 months in June.
“The sharply weaker than expected sales in July was the lowest so far this year, and could be a sign that higher interest rates really are affecting the U.S. housing recovery.
Certainly, with the number of homes for sale rising and months’ supply increasing to 5.2, from 4.3, the decline certainly seems to be more of a demand than a supply issue,” wrote Andrew Grantham, an economist at CIBC World Markets, in a research note. Despite annual growth, new-home sales remain far below a peak rate of almost 1.4 million in 2005.
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