New-Home Sales in U.S. Unexpectedly Fall to Four-Month LowVictoria Stilwell
Purchases of new U.S. homes unexpectedly declined in November to a four-month low, underscoring a lack of momentum this year in residential real estate.
Sales dropped 1.6 percent to a 438,000 annualized pace last month following a 445,000 rate in October that was weaker than previously estimated, Commerce Department figures showed today in Washington. The median estimate of 73 economists surveyed by Bloomberg called for a 460,000 pace in November.
Strict bank lending standards and rising property prices have bridled the industry this year following a pickup in 2013. Further growth in employment opportunities and persistently low borrowing costs may help provide a spark for the housing market in 2015.
Housing “will get back in tune in 2015 with these continued low mortgage rates and more job growth,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, whose forecast for a sales pace of 440,000 was the closest in the Bloomberg survey. “I don’t see any fundamental weakening going on here, it’s just more of the very slow back-and-forth in housing improvement.”
Another report from the Commerce Department showed more income is being generated as the job market improves. In November, personal income climbed 0.4 percent, the most in five months. Household spending accelerated as well.
Economists’ estimates ranged from a November sales rate of 425,000 to 480,000 after a previously reported 458,000 pace in October.
Stocks rose, with the Dow Jones Industrial Average climbing above 18,000 for the first time. The Dow advanced 71 points, or 0.4 percent, to 18,030.4 at 10:13 a.m. in New York. The Standard & Poor’s 500 Index gained 0.2 percent to 2,083.43.
New-home purchases were down 3.7 percent from November 2013 on an unadjusted basis, today’s report showed. The median price of a new home increased 1.4 percent last month from a year ago to $280,900.
Purchases decreased in three of four regions in November, with a 12 percent slump in the Northeast and a 6.4 percent decline in the South. Sales fell 6.3 percent in the Midwest and rose 14.8 percent in the West.
The supply of homes at the current sales rate increased to 5.8 months from 5.7 months in October. There were 213,000 new houses on the market at the end of November, the most since May 2010 and up from 210,000 a month earlier.
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 existing homes fell 6.1 percent to a 4.93 million annual rate last month, the weakest since May, from a 5.25 million pace in October, figures from the National Association of Realtors showed yesterday in Washington. Meanwhile prices continued to rise, with the median value increasing 5 percent from a year earlier to $205,300 last month.
That may make it harder for low-income and first-time buyers to enter the market, even with mortgage rates at the lowest levels since May 2013.
The average rate for a 30-year fixed mortgage was 3.80 percent in the week ended Dec. 18, according to Freddie Mac in McLean, Virginia. That’s the lowest level since then-Fed Chair Ben Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains, setting off an increase in interest rates.
“We all think the combination of the price increases from the builders and that shock of the move in rates so quickly chilled the market,” Douglas Yearley, chief executive officer of Toll Brothers Inc., said on a Dec. 10 earnings call. “And so from the summer of 2013 until the late summer of 2014, business was good, but business was flat.”
Still, Horsham, Pennsylvania-based Toll Brothers and other homebuilders remain optimistic, with confidence among those companies hovering close to a nine-year high this month, according to the National Association of Home Builders/Wells Fargo sentiment gauge.
“We’ve seen some signs of pretty significant improvement since the end of the summer,” Yearley said. “I think the buyers are still a little bit skittish, and we’re working through this recovery, but as we’ve said, it’s going to be a bit bumpy.”
Fed policy makers are closely monitoring economic data as they debate when to raise their benchmark interest rates following the worst recession in the post-World War II era.
Commerce Department data last week showed that the pace of U.S. home construction slowed in November, with housing starts declining 1.6 percent to a 1.03 million annualized rate. Building permits also fell, showing construction is also unlikely to surge in the immediate future.
Sustained labor-market improvement, pent-up demand and a growing population will also lure buyers into the market in the coming year, Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, wrote in a note to clients yesterday.
“2014 was close to a lost year for the housing recovery,” Stanley said. “With the pace of household formation beginning to creep back toward normal, the demand for homes is likely to firm.”