Sales of New U.S. Homes Fell More Than Forecast in July
Sales fell to a 394,000 annualized pace, Commerce Department figures showed today in Washington. The reading was the weakest since October and was lower than any of the forecasts by 74 economists Bloomberg surveyed.
A jump in borrowing costs over the past three months may be prompting buyers to hold back, showing the difficult job ahead for Federal Reserve officials as they try to wean the economy from monetary stimulus while sustaining growth. The falloff in demand is in contrast to a surge in confidence among builders such as Toll Brothers Inc. (TOL), which suggests they remain optimistic about the long-term outlook as employment improves.
“It’s definitely a rate shock,” said Doug Duncan, chief economist at Fannie Mae in Washington. “You could see another month or two of weak sales or it could go longer. This is a sustainable recovery, but we’ve also said it’s not robust. Along the way, there will be some hiccups. This is certainly a hiccup.”
Stocks rose, with the Standard & Poor’s 500 Index’s posting its first two-day gain in three weeks, as investors weighed the housing data against signals from Fed policy makers on stimulus cuts. The S&P 500 climbed 0.4 percent to 1,663.5 at the close in New York.
The median estimate of economists surveyed by Bloomberg called for a decrease to 487,000. Forecasts ranged from 445,000 to 525,000. The Commerce Department also marked down readings for each of the previous three months with June’s sales pace revised down to 455,000 from a previously reported 497,000 pace.
The difference between July’s outcome and the average estimate of economists surveyed was 7 times larger the poll’s standard deviation, or the average divergence between what each economist forecast and the mean. That was the biggest surprise since April 2010. The S&P Supercomposite Homebuilding Index, which includes companies such as Lennar Corp. (LEN) and KB Home (KBH), fell 1.5 percent in the first 30 minutes after the figures were released. It was down 3.1 percent at 1:12 p.m. in New York.
New-home purchases were 6.8 percent higher in July than the same period in 2012 on an adjusted basis, today’s report showed. The median price increased 8.3 percent last month from a year ago to $257,200.
That’s one reason builders are becoming more upbeat, with the National Association of Home Builders/Wells Fargo confidence index rising this month to the highest level since November 2005.
Toll Brothers, the largest U.S. luxury-home builder, this week reported sales grew 24 percent in the three months through July from the year before. Orders rose 26 percent to 1,405 homes.
“Inventory levels are still tight in almost all of our markets and housing remains very affordable,” co-founder Robert Toll said on an Aug. 21 conference call. “Unemployment trends are slowly improving and demand based on household formations is compelling, especially given the still very-low volume of industry home production.”
Purchases declined in all four regions in July, paced by a 16.1 percent slump in the West, today’s report showed.
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.
The average rate on a 30-year, fixed-rate purchase loan was 4.58 percent in the week ended Aug. 22, the highest in two years, according to McLean, Virginia-based Freddie Mac. The 30-year rate was at 3.35 percent in early May compared with a record-low 3.31 percent in November.
“Those higher interest rates are definitely going to be damping the housing market, and we’re beginning to see that,” Jason Schenker, president of Prestige Economics LLC in Austin, Texas, whose forecast of 445,000 was the lowest among economists surveyed by Bloomberg.
Purchases of previously owned homes climbed a more-than-forecast 6.5 percent to a 5.39 million annualized rate last month, the second-highest level in more than six years, as buyers rushed to lock in mortgage rates before they increased any more, figures from the National Association of Realtors showed Aug. 21.
The data reflected closings of contracts signed a month or two earlier, when mortgage rates were just beginning to edge up. Buyers were probably persuaded to complete transactions quickly as borrowing costs subsequently shot up.
A shortage of lots, materials and labor may push some builders to limit supply of new homes as they try to boost prices. Builders started work on 2.2 percent fewer single-family homes last month, taking them to a 591,000 annualized rate, the least since November, Commerce Department data showed last week.
Fed policy makers probably will reduce the pace of bond buying next month, according to 65 percent of economists surveyed Aug. 9-13 by Bloomberg. Their first step may be small, cutting monthly purchases by $10 billion to a $75 billion pace, according to the median estimate of 48 economists.
The minutes from the Fed’s July 30-31 meeting reveal policy makers’ anxiety. They describe “volatile” financial markets in response to “policy communications” and economic data, and U.S. interest-rate increases that signaled “heightened financial-market uncertainty about the path of monetary policy.”
Last month’s drop in new-home sales “is another reminder that the housing recovery may not be a straight line and may not be very steep,” said Nicolas Retsinas, director emeritus of Harvard University’s Joint Center for Housing Studies and a member of the Freddie Mac board of directors. “It will be interesting to see whether the housing recovery can withstand the headwind of rising interest rates.”
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