New-home sales unexpectedly slump to eight-month low

SALES OF NEW HOMES took an unexpected dip in March, according to the U.S. Commerce Department, as higher borrowing costs and shrinking inventory put a damper on consumer interest in owning a home. / BLOOMBERG NEWS FILE PHOTO/TY WRIGHT
SALES OF NEW HOMES took an unexpected dip in March, according to the U.S. Commerce Department, as higher borrowing costs and shrinking inventory put a damper on consumer interest in owning a home. / BLOOMBERG NEWS FILE PHOTO/TY WRIGHT

WASHINGTON – Sales of new U.S. homes unexpectedly plunged in March to the lowest level in eight months, reflecting a broad-based retreat that signals the industry is facing bigger challenges than just bad weather.

Sales dropped 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, U.S. Commerce Department data showed today in Washington, D.C. The median forecast of 74 economists surveyed by Bloomberg News called for the pace to accelerate to 450,000.

The housing recovery has slowed as higher borrowing costs and rising prices make properties less affordable. Shortages of buildable lots and skilled labor also have hindered construction as the market heads into its busiest time of year.

“It’s the reduction in affordability, the lack of inventory, also weak growth in median household income – all these are contributing to the sluggish recovery in housing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pa., who forecast sales would drop in March. “It’s going to raise concerns about the strength of the housing recovery, but it’s too early to be too worried.”

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Stock extended earlier losses after the report. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,876.9 at 10:33 a.m. in New York. The S&P Supercomposite Homebuilding Index declined 2 percent.

Economists’ estimates for the annual sales rate ranged from 428,000 to 476,000. The Commerce Department revised the February reading up to a 449,000 pace from a previously estimated 440,000.

July drop

The last time sales were this low or dropped as much in one month was in July, when interest rates on U.S. 10-year notes rose more than a percentage point from May after Federal Reserve policy makers indicated they would begin to trim asset purchases.

The median sales price of a new house climbed 12.6 percent from March 2013 to a record $290,000, Wednesday’s Commerce Department report showed.

Purchases slumped in three of four U.S. regions, led by a 21.5 percent drop in the Midwest, the biggest since September 2012. The West fell 16.7 percent to an 80,000 annualized rate, the weakest since January 2012.

The supply of homes climbed to 6 months, the most since October 2011, from 5 months in February. There were 193,000 new houses on the market at the end of March, the most since November 2010.

Timelier gauge

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

The pace of residential construction was held back last month even in warmer parts of the country that weren’t hit with snow and frigid temperatures. Housing starts climbed 2.8 percent to a 946,000 annualized rate following February’s 920,000 pace, the Commerce Department reported last week. Permits for future projects declined.

Sales of existing homes fell in March for a third consecutive month as rising prices and a lack of inventory discouraged would-be buyers. Closings on previously owned properties, which usually occur a month or two after a contract is signed, fell 0.2 percent to a 4.59 million annual rate, the lowest level since July 2012, the National Association of Realtors reported Tuesday. Purchases fell 8.5 percent compared with the same month last year.

Remaining optimistic

Some builders see plenty of room for growth as the job market improves and young adults return to the market. LGI Homes Inc., is targeting first-time buyers in the Southwest, Florida and Georgia with properties priced between $140,000 and $250,000. The company, based in The Woodlands, Texas, closed 485 sales in the first three months of this year, an almost 92 percent increase from the same period a year ago.

LGI expects to sell at least 2,200 properties this year, CEO Eric Lipar said.

“We are seeing steady traffic in sales on a per-community basis and demand from customers looking for home ownership is high,” Lipar said on a March 31 earnings call. Many first-time buyers are shopping for more expensive properties with higher-quality finishes, he said.

“We’ve got a lot of communities right now that have sales prices on certain floor plans above $200,000,” Lipar said. “That’s really still targeting the first-time homebuyer and someone that is currently paying rent and moving into a home.”

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