Builders in the U.S. sold fewer new homes than forecast in October and purchases were revised down for the prior month, highlighting the hurdles facing a rebound in the industry at the heart of the financial crisis.
Sales dropped 0.3 percent to a 368,000 annual pace following a 369,000 rate in September that was 20,000 lower than initially reported, figures from the Commerce Department showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg projected a 390,000 pace.
The report runs counter to recent data showing gains in residential construction, builder confidence and mortgage applications that indicate housing is on the verge of contributing more to economic growth. Easier access to credit and more employment are still needed to ensure the real-estate rebound is sustained -- one reason why Federal Reserve Chairman Ben S. Bernanke has pledged to maintain record stimulus.
“Better job growth is the key factor,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who projected a 365,000 rate of sales. “We really have a lot of ground to make up from the recession.”
Stocks rose, erasing early losses, as lawmakers said they are optimistic a budget agreement can be reached to avoid automatic spending cuts and tax increases in 2013. The Standard & Poor’s 500 Index climbed 0.8 percent to 1,409.93 at the 4 p.m. close of trading in New York. The yield on the benchmark 10-year Treasury note decreased to 1.63 percent from 1.64 percent late yesterday.
Home sales estimates in the Bloomberg survey ranged from 365,000 to 418,000. September’s reading was revised down by 5.1 percent, almost matching what the Commerce Department says is the 5 percent average change following the first estimate.
“The new-home sales data are volatile and revision-prone and we are not changing our view that a modest recovery in home sales, construction activity, and prices is well under way,” economists John Ryding and Conrad DeQuadros of RDQ Economics in New York said in a research note.
The National Association of Home Builders/Wells Fargo sentiment index has climbed for seven consecutive months to reach the highest level since May 2006, the group reported last week. Housing starts rose in October to a four-year high, according to Commerce Department data issued Nov. 20.
While the Commerce Department said superstorm Sandy had “minimal” impact on sales last month, the breakdown did show differences among regions. Purchases surged 62.2 percent in the Midwest, to the highest level in almost three years, and jumped 8.8 percent in the West to the fastest pace since July 2008.
Home purchases dropped 32.3 percent in the Northeast, the area most affected by the storm.
“We will continue to use the policy tools that we have to help support economic recovery,” Bernanke said in a Nov. 15 speech in Atlanta.
While tighter credit rules following the collapse of the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery,” he said.
Concern with the pace of economic growth is being echoed by policy makers overseas. Bank of England Deputy Governor Charlie Bean said in an interview yesterday that business confidence remains vulnerable and officials should keep open the option to expand stimulus even if its potency is currently diminished.
The U.S. housing market would benefit from a bigger pickup in employment, according to homebuilder D.R. Horton Inc. The Fort Worth, Texas-based company, which is the largest U.S. homebuilder by volume, this month reported fiscal fourth-quarter earnings that beat analysts’ estimates.
“What we’re seeing is improvement off of an extremely low bottom in the housing market,” William Wheat, chief financial officer at D.R. Horton, said at a Nov. 15 conference. “We’re seeing small amounts of job growth right now. We’re going to need to see more over the long term. Jobs is the No. 1 driver for housing demand.”
Sales of new homes, tabulated when contracts are signed, are considered a timelier barometer than purchases of previously owned dwellings, which are calculated when a contract closes. Newly constructed houses accounted for 6.7 percent of the residential market in 2011, down from a high of 15 percent during the boom of the past decade.
Previously owned homes sold at a 4.79 million rate in October, close to the two-year high 4.83 million pace reached in August, according to data released last week by the National Association of Realtors.
With fewer distressed properties on the market, prices have started to stabilize. Home foreclosures dropped 19.2 percent in October from a year earlier, according to the RealtyTrac Foreclosure report. In September, they declined to the lowest level since July 2007.
Home prices rose in the year ended in September by the most since July 2010, a report yesterday showed. The S&P/Case-Shiller index of property values in 20 cities climbed 3 percent from September 2011, after advancing 2 percent in the year to August, the group said today in New York. Values from July through September, compared with the same period last year, climbed the most since the second quarter of 2010.
Residential construction added 0.33 percentage point to a 2 percent increase in third-quarter gross domestic product, Commerce Department data showed last month. Revised GDP figures will be released tomorrow.
Cheaper borrowing costs are at the heart of the pickup in housing demand. The average 30-year fixed rate mortgage was 3.31 percent in the week ended Nov. 21, the lowest on record, according to data from Freddie Mac that dates back to 1971.
The lower rates are helping propel demand with the number of mortgage applications to purchase a house climbing last week to the highest level of this year, figures from the Mortgage Bankers Association also showed today.
“We continue to believe the housing market remains on the path to recovery, and this should provide a meaningful tailwind to economic activity next year,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a research note.