Purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties.
Sales, tabulated when contracts are signed, dropped 2.3 percent to a 295,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of 73 economists in a Bloomberg News survey called for a decline to 293,000. The median price slumped 7.7 percent from August 2010, the steepest 12-month drop since July 2009.
Foreclosure-driven price decreases for previously owned homes may keep attracting investors away from new properties, hurting builders like Lennar Corp. Limited access to credit, rising unemployment and waning consumer confidence also signal the industry that helped precipitate the recession will take time to find its footing.
“Sales are very weak, and there will be very little improvement over the next couple of months,” said Celia Chen, a housing economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We expect a step up in distressed home sales, which will put more downward pressure on prices. It’ll be a very slow return to normal.”
Stocks climbed on speculation European leaders will act to prevent the region’s debt crisis from getting worse. The Standard & Poor’s 500 Index rose 2.3 percent to 1,162.95 at the 4 p.m. close in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 1.90 percent from 1.83 percent late on Sept. 23.
Economists’ estimates ranged from 275,000 to 320,000. The government revised July demand up to 302,000 from a previously reported 298,000.
The median sales price decreased to $209,100 in August from $226,600 in the same month last year, today’s report showed.
Purchases fell in three of four U.S. regions last month, led by a 14 percent drop in the Northeast. The Midwest registered the only gain, advancing 8.2 percent.
The supply of homes at the current sales rate rose to 6.6 month’s worth, from 6.5 months in the prior month. There were 162,000 new houses on the market at the end of August, the fewest in data going back to 1963.
Sales of previously owned homes climbed 7.7 percent in August to a five-month high 5.03 million annual rate, figures from the National Association of Realtors showed Sept. 21. The median price fell 5.1 percent from August 2010. Cash deals accounted for 29 percent of the transactions, while distressed properties, including foreclosures and short sales, made up 31 percent.
New home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later. Resales accounted for about 90 percent of the housing market last year.
Miami-based Lennar, the third-largest U.S. homebuilder by revenue, reported a 31 percent drop in profit in the quarter ended Aug. 31 as sales fell. The market remains “challenging,” with “already skittish customers” driven away by burdensome mortgage-qualification rules, Chief Executive Officer Stuart Miller said on a conference call on Sept. 19.
Existing homes and foreclosures are Lennar’s “biggest competitors in today’s market,” Miller said. At the same time, there is “evidence that the consumer is beginning to return in earnest” as home prices have fallen to attractive levels and mortgage rates on 30-year loans are at record lows, he said.
Federal Reserve policy makers last week announced more steps to spur growth and revive the residential real estate industry, which since 1982 has aided every economic recovery except the current one that began in June 2009.
Housing starts dropped in August to the slowest annual rate in three months, the Commerce Department reported last week. The National Association of Home Builders/Wells Fargo sentiment index fell in September to a three-month low, other data showed.
“There are significant downside risks to the economic outlook, including strains in global financial markets,” the Fed said in a statement on Sept. 21 after its two-day meeting. “The housing sector remains depressed,” and there is “continuing weakness in overall labor market conditions.”
In a move aimed at lowering borrowing costs, the Fed said it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less. The central bank will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries in an attempt to spur housing and refinancing.