Fewer U.S. new homes than forecast were sold in June and data for the prior month was revised down by a record, painting a troubling picture of a market struggling to gain traction.
Sales declined 8.1 percent to a 406,000 annualized pace, the fewest since March and lower than any projection in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. That followed a May rate of 442,000 that was 12.3 percent less than estimated last month.
Restrictive lending rules, limited land supply, higher mortgage rates and more expensive properties are restraining housing, underscoring Federal Reserve Chair Janet Yellen’s concern that the industry is underperforming. Other data showed the fewest Americans in more than eight years filed applications for unemployment benefits last week, probably reflecting a pickup in auto-making during a typically slow time of year.
“The housing data on balance has looked weaker than some of the other indicators on the economy,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. “The tightness in credit conditions has limited the pool of prospective buyers.”
The Standard & Poor’s 500 Index extended a record as Facebook Inc. rallied on higher revenue, and growth in global manufacturing offset the drop in home sales. The S&P 500 rose 0.1 percent to 1,987.98 at the close in New York. The S&P 500 Homebuilding Sub Index dropped 4.9 percent.
Euro-area manufacturing and services activity strengthened in July, signaling confidence that further stimulus by the European Central Bank will consolidate a fledgling economic recovery, figures from London-based Markit Economics showed today. A Chinese manufacturing gauge rose this month to an 18-month high, bolstering the government’s chances of meeting its 2014 economic-growth target, preliminary figures from HSBC Holdings Plc and Markit Economics also showed today.
The Markit Economics preliminary index of U.S. manufacturing in July retreated from a four-year high the prior month, the London-based group said today. The average over the past three months was the strongest since mid-2010.
“U.S. manufacturers are enjoying a summer of scorching growth,” Chris Williamson, chief economist at Markit, said in a statement. “The growth rebound that the survey has signaled for the second quarter therefore looks to have been sustained into the third quarter.”
Among manufacturers, a pickup in auto-making is probably behind the drop in the number of people applying for unemployment benefits. Jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006, a Labor Department report showed today in Washington.
The timing and extent of closings to retool auto factories for the new model year are typically difficult for the government to gauge, causing claims to gyrate at this time of year. Michigan, New Jersey and Ohio were among states that reported the biggest decreases in claims in the week ended July 12 amid fewer dismissals in manufacturing and transportation industries, today’s report showed. That may indicate more auto plants than usual remained open this year to meet improving demand.
“Today’s jobless claims data likely informs us more about production than employment,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, said in a note after the report. “Auto production is in overdrive at a time when factories are normally shut down to retool for new makes and models. We would expect a significant pick-up in motor-vehicle production and manufacturing employment in July.”
The drop in new-home sales was larger than any estimate in the Bloomberg survey. The median forecast of 76 economists called for a decrease to 475,000. Projections ranged from 440,000 to 525,000. The May reading was revised down from a previously reported 504,000 pace that would have been the strongest since June 2008.
Purchases decreased in all four regions in June, with a 20 percent drop in the Northeast and a 9.5 percent decline in the South leading the way, today’s report showed.
The supply of homes at the current sales rate climbed to 5.8 months, the highest since October 2011, from 5.2 months in May. There were 197,000 new houses on the market at the end of June, the most since October 2010.
The data corroborate Yellen’s Senate testimony last week that progress in the housing market has been lackluster.
While housing has recovered from its lows, “activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing,” Yellen said last week during her semi-annual testimony to the Senate Banking Committee.
The average rate for a 30-year fixed mortgage was 4.13 percent in the week ended July 24, according to Freddie Mac in McLean, Virginia. While down from 4.53 percent at the start of the year, it’s higher than 3.35 percent at the start May 2013.
The median price of a new home increased 5.3 percent last month from a year ago to $273,500, according to today’s report.
Sales of new properties, which are tallied when purchase contracts are signed, are considered a more timely measure of the market than sales of previously owned dwellings, which are counted when a sale is final.
Purchases of existing homes increased 2.6 percent to a 5.04 million annual rate last month, led by gains in all four U.S. regions, figures from the National Association of Realtors showed earlier this week. Prices advanced at the slowest pace since March 2012 and inventories rose to an almost two-year high.
Jeffrey Mezger, chief executive officer at KB Home, said last month he’s seeing some signs that the first-time homebuyer is returning. The Los Angeles-based company reported a profit for its fiscal second quarter as selling prices and orders increased.
“While these favorable trends are very encouraging, it is still going to take some time until we reach historical new home activity levels,” Mezger said in a June 27 earnings call. “As a result, many outlooks on the housing industry are measured, but we are optimistic as we are building a real growth story in the current environment.”