Sales of new U.S. homes declined more than projected in July to the lowest level in five months, indicating the industry is struggling to stabilize two years into the economic recovery.
Purchases fell 0.7 percent to a 298,000 annual pace after a 300,000 rate in June that was slower than previously estimated, figures from the Commerce Department showed today in Washington. The median projection in a Bloomberg News survey of economists called for a 310,000 rate in July.
Builders are less inclined to start new projects as they face competition from cheaper existing homes and the prospect of foreclosures putting more unsold properties on the market. A jobless rate above 9 percent and limited employment growth indicate housing may keep weighing on the recovery even with mortgage rates at a record low.
“There is no upside momentum at all in housing,” said Eric Green, chief market economist at TD Securities Inc. in New York, whose forecast for sales was 300,000. “Without any meaningful job growth, we’re going to continue to look at a housing sectors that is moribund.”
Stocks held gains after the figures, with the Standard & Poor’s 500 Index climbing 1.5 percent to 1,140.21 at 10:49 a.m. in New York. Treasuries were little changed with the yield on the benchmark 10-year note as 2.11 percent.
Estimates of the 76 economists surveyed by Bloomberg ranged from annual selling rates of 290,000 to 330,000. About 323,000 new dwellings were sold in 2010, the fewest on record.
Another report today showed manufacturing, which helped the economy emerge from recession, is beginning to slow. The Federal Reserve Bank of Richmond’s business activity index dropped to minus 10 in August, the weakest since June 2009, from minus 1 as orders contracted.
The monthly survey of producers in the region covering the Carolinas, Maryland, Virginia and West Virginia corroborates factory reports from Philadelphia and New York that pointed to weakness in the industry.
The Commerce Department’s data showed the median sales price of a new home increased 4.7 percent to $222,000 from July 2010. There were a record-low 165,000 new houses on the market at the end of July, leaving the supply of homes at the current sales rate at 6.6 months’ worth, the same as in June.
Sales dropped in two of the four U.S. regions, led by a 7.4 percent slump in the South that was the biggest since August 2010. Purchases declined 5.9 percent in the West.
Previously Owned Homes
Competition from cheaper, existing homes is hurting sales of new dwellings. Distressed properties, which include foreclosures and short-sales, have made up about 33 percent of all existing-home sales since late 2008, according to the National Association of Realtors.
Purchases of previously owned houses, which account for the bulk of the market, fell last month to the weakest pace since November, the NAR reported on Aug. 18. The 3.5 percent decrease reflected an increase in cancellations due to strict lending rules and low appraisals.
“The U.S. housing market remains under stress,” Frank Blake, chairman and chief executive officer at Home Depot Inc. (HD), said on an Aug. 16 teleconference with analysts. “We do not expect any meaningful improvement in the housing market for the back half of 2011, and events here and across the globe would suggest that there are more risks to the downside than the upside on GDP growth.”
“Residential construction activity remains at an extremely low level,” Bernanke said in July 13 testimony to Congress. “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment.”
Consumer confidence in August plunged to the lowest level since May 1980, according to the Thomson Reuters/University of Michigan preliminary index. Rising pessimism poses a risk household spending will cool further, hindering a recovery that’s shown signs of fatigue.
Declining sentiment, a lack of hiring and limited income are hurdles for a housing market even with mortgage rates at all-time lows. The average on a 30-year fixed-rate mortgage was 4.15 percent in the week ended Aug. 18, down from 4.42 percent in the period a year ago, according to Freddie Mac.
Signs of Strain
More signs of strain in the housing market emerged yesterday. The percentage of U.S. mortgages overdue by one month rose to the highest level in a year in the second quarter as homeowners who lost jobs were unable to make their payments.
The share of home loans overdue by 30 days rose to 3.46 percent of all mortgages, from 3.35 percent in the first quarter, according to a report today from the Mortgage Bankers Association in Washington. The percentage of mortgages overdue by 60 days increased to 1.37 percent from 1.35 percent, while foreclosures dropped for the second consecutive quarter.
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