Gain in Home Sales Allay Concern of More Weakness: Economy

Sales of new U.S. homes climbed in April for the first time in three months, allaying concerns of an extended setback in the residential real-estate market.

The 6.4 percent increase to a 433,000 annualized rate was the biggest in six months and followed a 6.9 percent March decline, Commerce Department data showed today in Washington. The advance was spurred by a surge in demand in the Midwest.

Last month’s gain brought the sales pace in line with the first-quarter average, indicating housing’s contribution to economic growth will be muted. An increase in the number of available homes, slower price gains and easier lending standards would help encourage prospective buyers to take advantage of falling mortgage rates.

“The deep freeze is over, and I think we can expect new home sales to continue to rise,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, who projected a 432,000 rate of April sales. “It’s better; it’s still not strong.”

Figures yesterday from the National Association of Realtors painted a similar picture of the housing market. Sales of previously owned homes climbed 1.3 percent, helped in part by an increase in the supply of properties.

New-home sales account for about 7 percent of the residential market and are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes, which are based on closings.

Lacking Momentum

“You’re not seeing renewed upward momentum yet,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, who projected an April sales rate of 435,000. Still, “I don’t think there’s a downtrend here of any consequence.”

Stocks rose after the report, with the Standard & Poor’s 500 Index closing above 1,900 for the first time. The S&P 500 increased 0.4 percent to 1,900.53 at the close in New York. The S&P Supercomposite Homebuilding Index advanced 2.7 percent.

Elsewhere, German business confidence declined more than economists forecast amid signs that growth in the euro area’s largest economy will slow this quarter.

The median forecast of economists surveyed by Bloomberg called for a 425,000 annual rate of U.S. home sales. Estimates ranged from 395,000 to 460,000. Sales in March ran at a 407,000 pace, stronger than the previously reported 384,000.

The increase in new-home sales last month was led by a 47.4 percent surge in the Midwest to an 84,000 annual rate, the fastest since November 2007. Purchases also climbed 3.1 percent in the South. They fell in the Northeast by the most since October 2012 and were unchanged in the West.

Home Prices

The regional data were reflected in the price figures. The median selling price in the U.S. fell 1.3 percent from a year earlier to $275,800. Homes are typically more expensive in the Northeast, where sales declined, and in the West.

There were 192,000 new houses on the market at the end of April, representing 5.3 months of supply at the current sales pace after 5.6 months in March.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.

The slowdown hasn’t gone unnoticed at the Federal Reserve. Policy makers cited a potential “persistent slowdown” in housing as a downside risk for growth, according to minutes of the April 29-30 policy meeting.

“We’re still looking for a modest recovery in housing,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. The April rebound helps reduce “fears that we have an overall stalled housing market.”

Builder Sentiment

Builder optimism has eased as well, reflecting still-tight credit conditions and limited availability of lots. Confidence dropped in May to the lowest level of the year, according to a gauge of builder sentiment from the National Association of Home Builders/Wells Fargo.

“I think that through the rest of the year, we’ll see an improvement, albeit maybe a little bit slow, but I do think that we’re on the right track,” Larry Nicholson, president and chief executive officer at Westlake Village, California-based Ryland Group Inc., said during a May 14 presentation.

Some relief may be in store for potential buyers as borrowing costs decline. The average rate on a 30-year, fixed mortgage dropped to 4.14 percent in the week ended yesterday, the lowest level since October, according to Freddie Mac in McLean, Virginia.

Builders are gradually adding to the supply of single-family homes. A report last week from the Commerce Department showed construction starts of one-family properties increased for a third straight month, to 649,000 at an annual rate in April.

Home appliance maker Whirlpool Corp. in Benton Harbor, Michigan, is upbeat about demand.

“We are, I would say, still in the early stages of a rebound in the housing market,” Chief Financial Officer Larry Venturelli said at a May 14 homebuilding conference. Underlying demand in the housing markets “continue to be very strong.”

(Updates with Northeast sales historical in 11th paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE