Slowing Home Sales Show U.S. Market Lacks Momentum: EconomyLorraine Woellert
The pace of new-home sales fell to the slowest in four months in July, signaling U.S. real estate lacks the vigor to propel faster growth in the economy.
Purchases unexpectedly declined 2.4 percent to a 412,000 annualized pace, weaker than the lowest estimate of economists surveyed by Bloomberg, Commerce Department data showed today in Washington. June purchases were revised up to a 422,000 rate after a May gain that was also bigger than previously estimated.
Housing has advanced in fits and starts this year as tight credit and slow wage growth kept some prospective buyers from taking advantage of historically low borrowing costs. Bigger job and income gains, along with a further slowdown in price appreciation, would help make properties more affordable.
“It’s a little bit disappointing,” said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years, according to data compiled by Bloomberg. “The new-home sales data have no traction whatsoever and don’t seem to be gaining at all.”
In contrast, purchases of previously owned properties have climbed for four straight months, reaching an almost one-year high in July, according to data from National Association of Realtors. Combined annualized sales of existing and new homes totaled 5.56 million in July, the fastest since October.
“The housing data when you look at all of it together is still, on net, encouraging,” Simons said. “Everything is moving in the right direction, just a little more slowly.”
New-home sales, which last year accounted for about 5 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.
Demand for existing homes picked up last month as low borrowing costs and an increase in inventory drew buyers. The annual pace of purchases climbed to 5.15 million in July, the best showing since September, according to the Realtors group.
Builders and their suppliers see room for growth as the job market improves. As foreclosures and other distressed property sales become a smaller share of the market, housing growth will accelerate, said Robert A. Niblock, chairman and chief executive officer of home-improvement chain Lowe’s Cos., based in Mooresville, North Carolina.
“Signals from the housing market appear mixed,” Niblock said on an Aug. 20 earnings call. “We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth.”
Stocks rose, briefly sending the Standard & Poor’s 500 Index above 2,000 for the first time, as corporate dealmaking and prospects for economic stimulus bolstered confidence in the bull market. The S&P 500 advanced 0.5 percent to 1,997.94 at the close in New York. The S&P Supercomposite Homebuilding Index dropped 0.7 percent.
European Central Bank President Mario Draghi’s concern is that if inflation expectations keep falling, they’ll affect actual prices as investors, consumers and companies pull back spending in anticipation. On Aug. 22 at a central-banking conference in Jackson Hole, Wyoming, he said the ECB “will use all the available instruments needed to ensure price stability over the medium term.”
The Commerce Department’s new-home sales figures showed purchases dropped in three U.S. regions, led by a 30.8 percent slump in the Northeast. The West declined 15.2 percent and the Midwest fell 8.8 percent. Sales rose 8.1 percent in the South.
The median forecast of 70 economists surveyed by Bloomberg called for all home sales to accelerate to a 430,000 rate. Estimates ranged from 414,000 to 470,000 after a previously reported 406,000 in June.
Sales of new properties have averaged 429,000 over the last three months, in line with the 2014 average.
More hiring and income growth may persuade some Americans to sign purchase contracts. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures. At the same time, wages are barely keeping up with inflation.
A decline in borrowing costs this year is providing some support. The average 30-year, fixed-rate mortgage was 4.1 percent in the week ended Aug. 21, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.
Limited progress in the housing market is a risk for the economy, according to Federal Reserve Vice Chairman Stanley Fischer. The real-estate market “continues to weigh on the recovery,” he said at a conference earlier this month.
An increase in supply of available homes is limiting price appreciation, which could spur more buyer interest.
Today’s data showed the supply of homes at the current sales rate rose to 6 months, the highest since October 2011, from 5.6 months in June. There were 205,000 new houses on the market at the end of July, the most in almost four years.
The median sales price of a new house climbed 2.9 percent from July 2013 to $269,800 last month.