Sales of New U.S. Homes Exceeded Estimates in March: Economy

Sales of New U.S. Homes Decline to Pace That Exceeds Forecasts
New-home sales have lost their ability to forecast the broader market as demand shifts to previously owned houses. Photographer: Sam Hodgson/Bloomberg

Demand for new U.S. homes was stronger than projected in March, showing more jobs and cheaper borrowing costs are helping stabilize the market.

Houses sold at a 328,000 annual rate, down from an upwardly revised 353,000 pace in February that was the highest in two years, according to Commerce Department data issued today in Washington. The median estimate in a Bloomberg News survey forecast a rate of 319,000. Other reports showed home prices are stabilizing and consumer confidence was little changed.

Job gains, mortgage rates close to all-time lows and cheaper properties are underpinning residential real estate, which has been the economy’s weak spot. At the same time, immediate progress will be limited by distressed properties that will continue to hold down property values.

“Housing is going to gradually dig out of this deep hole because the job market is going to be firming,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the only analyst to correctly forecast the sales pace.

“The one thing is the foreclosure pipeline,” Sweet said. Home values “may still have a little more room to fall, but this will probably be the year that prices find a bottom.”

Stocks rose, helped by homebuilder shares. The Standard & Poor’s 500 Index climbed 0.4 percent to 1,371.97 at the close in New York. The S&P Supercomposite Homebuilding gauge was up 2.4 percent.

Elsewhere today, reports showed Britain’s budget deficit unexpectedly widened in March and inflation in Australia cooled.

February Revision

The February reading for U.S. new-home sales was the strongest since April 2010, and was revised up from an originally reported 313,000. It provides evidence of the boost from unseasonably mild temperatures that was missing from the figures as first reported, said Sweet.

“The drop in sales last month was disappointing, but it’s probably payback from the usually mild weather” in prior months, said Sweet. “In hindsight, the favorable weather and the improving job market should have translated to favorable numbers for February and the revisions now show that.”

Estimates of the 78 economists in the Bloomberg survey ranged from 300,000 to 337,000.

Another report showed home prices in 20 U.S. cities dropped at a slower pace in the year ended February, pointing to stabilization in the real-estate market. The S&P/Case-Shiller index of property values fell 3.5 percent, the smallest 12-month drop since February 2011. The gauge climbed from the prior month on a seasonally adjusted basis for the first time since April of last year.

Prices Stabilize

A report from the Federal Housing Finance Agency sent a similar signal. Those figures showed property values rose 0.3 percent in February from the prior month. Prices were up 0.4 percent from the same time in 2011, the first positive reading since the 12 months to July 2007.

Confidence among consumers was little changed in April, other figures showed. The Conference Board’s confidence index was at 69.2 compared to a revised 69.5 in the prior month, figures from the New York-based private research group showed today.

New-home sales have lost their ability to forecast the broader market as demand shifts to previously owned houses. New properties made up almost 7 percent of the market last year, down from a high of 15 percent during the last decade’s housing boom.

Existing Homes

Sales of previously owned homes fell in March for a second month, dropping 2.6 percent to a 4.48 million annual rate, the National Association of Realtors reported last week. Purchases of existing homes are calculated when a deal closes about a month or two after a contract is signed.

The recent pickup in new properties has helped reduce inventory. There were 144,000 new houses on the market at the end of March, the fewest in data going back to 1963. The supply of homes at the current sales rate climbed to 5.3 months’ worth from a six-year low of 5 months in February.

The median sales price increased 6.3 percent in March from the same month last year to $234,500, today’s report showed.

Purchases rose in two of the four U.S. regions, led by a 7.7 percent jump in the Northeast. They were also up 3.1 percent in the South. Revisions to the February data reflected stronger readings in the South and West than initially reported.

Sales in the first three months of 2012 may have benefited from warmer weather, making it possible to go house-hunting. The first quarter of 2012 was the warmest since record-keeping began in 1895, according to the National Oceanic and Atmospheric Administration.

Builder Confidence

Builder confidence fell in April for the first time in seven months, a report showed last week. The National Association of Homebuilders/Well Fargo sentiment gauge dropped to 25 from 28 in March. Readings less than 50 mean there were more negative than positive responses. The measure had been as low as 14 in September.

At the same time, borrowing costs are conducive to a pickup in housing. The average rate on a 30-year fixed mortgage was 3.90 percent last week, close to the record-low of 3.87 percent reached in February, according to Freddie Mac data.

To help hold down borrowing costs, Federal Reserve policy makers last month said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist. The program is scheduled to come to a close by the end of June. Central bankers meet today and tomorrow to determine the course of policy.

Suppliers Benefit

Construction suppliers, meantime, are among the companies that stand to benefit from a pickup in housing demand.

At paint manufacturer Sherwin-Williams Co., stronger demand led to the Cleveland-based company’s highest volume of first-quarter sales since 2004, Chief Executive Officer Christopher Connor said on an April 19 earnings call.

“We do take great comfort in all the anecdotal conversations that we have with thousands and thousands of painting contractors in our stores every day,” Connor said. They are hiring crews and purchasing the kinds of equipment and supplies that points to a pickup in demand, he said.

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