Dow Jones
Sales of newly built homes fell sharply in July to the lowest level in nine months, heightening worries that higher mortgage rates will slow the housing recovery.
New-home sales fell by 13.4 per cent in July from a month earlier to an annual rate of 394,000, the Commerce Department said Friday. That was the steepest drop in three years and sent sales down to the lowest level since last October.
The report also showed that June sales were lower than previously estimated, with that month's figure now at 455,000 from an initially reported 497,000.
Economists surveyed by Dow Jones Newswires had expected July sales to reach 490,000.
The drop in new-home sales came at a time of industry concerns that higher mortgage rates from spring, which effectively raise the cost of buying a home, would scare away potential buyers. The average rate on a 30-year mortgage rose to 4.58 per cent this week, according to Freddie Mac, up from 4.40 per cent a week ago and more than a point higher from the level in May.
Many economists say it's still too early to tell how the higher rates are affecting the industry. But the big drop in new home sales could add to industry worries that overall home sales, including previously owned properties, will slow in coming months. That could slow the overall United States recovery, which has leaned heavily on housing as a source for growth as other sectors, such as manufacturing and government spending, remain weak.
Even with the big decline, new-home sales are still up on the year, reflecting a sturdy housing recovery. Sales in July were 6.8 per cent higher from a year ago.
Other reports indicate that housing remains strong. Sales of previously owned homes rose 6.5 per cent in July from a month earlier to the highest level in nearly four years, the National Association of Realtors, an industry trade group, said earlier this week. Some economists said that might reflect buyers rushing to lock in ahead of higher rates. The median price of homes sold that month continued to climb.
The latest batch of data come at a crucial time, as the Federal Reserve contemplates reducing an $US85 billion a month bond-buying program as early as September. Fed officials are looking for signs of an improving economy before reducing the purchases.
The slower sales pace in July, coupled with rising inventory, caused a small dip in prices.
The median price for a new home slipped 0.5 per cent to $257,200. The number of new homes listed for sale, seasonally adjusted, at the end of July was 171,000. The supply would take 5.2 months to deplete at the current sales pace.
A copy of the full report is available at: http://www.census.gov/construction/nrs.