WASHINGTON – Purchases of new U.S. homes plunged in July by the most in more than three years and previous months were revised down, a sign that growth in the industry may be taking a pause as mortgage rates rise.
Sales of newly built homes declined 13.4 percent to a 394,000 annualized pace, the weakest since October, following a 455,000 rate in the prior period that was lower than previously estimated, Commerce Department figures showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg called for a decrease to 487,000. Last month’s decline was the biggest since May 2010.
Builders are holding back amid constraints on available land and materials in a bid to boost prices and revenue. At the same time, more jobs and pent-up demand may help sustain gains in housing as homebuyers rush to take advantage of historically low borrowing costs before they rise further.
“The housing recovery itself is likely to take a bit of a breather,” Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, said before the report. “It means at the margin that housing is not going to provide the lift to the economy that it would have before.”
Stocks were little changed after the report, trimming earlier gains. The Standard & Poor’s 500 Index fell 0.1 percent to 1,655.2 at 10:03 a.m. in New York. The S&P Supercomposite Homebuilding Index dropped 3 percent.
Last month’s sales pace was lower than any estimate of economists surveyed, which ranged from 445,000 to 525,000 after a previously reported 497,000 pace in June. Sales data going back to April were revised down.
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 of a new home increased 8.3 percent last month from a year ago to $257,200.
Purchases declined in all four regions in July, paced by a 16.1 percent slump in the West.
The supply of homes at the current sales rate rose to 5.2 months from 4.3 months in June. There were 171,000 new houses on the market at the end of July, up from 164,000 the month before.
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 of previously owned homes climbed a more than forecast 6.5 percent to a 5.39 million annualized rate last month, figures from the National Association of Realtors showed Aug. 21. The median price increased 13.7 percent in July from a year earlier, the most since October 2005.
The slump in new-home sales last month is at odds with growing builder confidence that’s at the highest level since November 2005.
Rising home prices and gains in stock portfolios and employment have increased the appeal of purchasing a home, with Toll Brothers Inc., the largest U.S. luxury-home builder, reporting sales that 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.”
A shortage of lots, materials and labor may push some builders to limit supply of new homes as they try to boost prices and sales. 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.
While mortgage rates rising from record lows will initially push some buyers into the market, it may have a damping effect on future home sales, TD Securities’ Mulraine said. 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, Va.-based Freddie Mac. The 30-year rate reached a record-low 3.31 percent in November.
Even as rising rates may hinder housing affordability, “we’ve got a long way to go before it should have a dramatic impact, we believe, on mortgage availability or the attractiveness to a consumer, or a homeowner to take out a mortgage,” Carol Tome, chief financial officer of Home Depot Inc., said on an Aug. 20 conference call.
Comparable-store sales at Atlanta-based Home Depot, the largest U.S. home-improvement retailer, jumped the most in 14 years as shoppers buoyed by the housing recovery increased spending. The average purchase at Home Depot climbed 4.3 percent to $57.39 in the second quarter.