U.S. New Home Sales Rise 6.5% in July to 1.41 Million Rate
U.S. New Home Sales Rise 6.5% in July to 1.41 Million Rate
Aug. 24 (Bloomberg) -- U.S. new home sales unexpectedly rose to a record last month as mortgage rates below 6 percent and steady employment growth sent Americans streaming into the housing market.
New home sales rose 6.5 percent to a 1.41 million annual rate last month from 1.324 million in June, the Commerce Department said today in Washington. Economists surveyed by Bloomberg News expected sales to fall to 1.328 million, the median of 52 forecasts, from the previously reported 1.374 million.
Mortgage rates within half a percentage point of a 40-year low and 26 straight months of job growth spurred home sales in July, boosting demand for builders, real estate agents and lenders including Quicken Loans Inc. New home sales, which may set a fifth straight annual record this year, probably won't go much higher and will fall in 2006 as prices continue to rise, economists said.
``Right now, housing is still going like gangbusters,'' Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. ``The economy is doing incredibly well and long-term interest rates are still very level.''
The median price of new homes fell to $203,800, the lowest since December 2003, from $219,500. Today's report puts new home sales in the first seven months of this year on a record pace of 1.304 million. Sales were 1.203 million last year.
Existing Home Sales
Some housing indicators are signaling a slowdown. The National Association of Realtors said yesterday sales of previously owned homes fell in July to a 7.16 million annual rate from a record 7.35 million the month before. A gauge of U.S. homebuilder optimism fell for the second straight month in August as mortgage rates rose.
That hasn't deterred lenders such as Quicken Loans of Livonia, Michigan.
``Business continues to be strong,'' Bob Walters, the company's chief economist, said in an interview.
New home sales rose 36 percent in the West to 495,000, a record. They also rose in the Northeast, by 10.1 percent, to 98,000. Sales fell 13.5 percent in the Midwest, to 205,000 and fell in the South by 3.5 percent to 612,000.
The number of homes for sale at the end of the month rose to 460,000, a record, from 452,000.
The supply of new homes for sale at the current pace fell to 4 months from June's 4.1 months.
Supplies of existing homes have been rising during the past year, suggesting owners may be trying to sell before the market weakens. A rising inventory of homes may also mean fewer buyers, and supplies may increase as home purchases become too expensive for more Americans.
Demand
``Demand is still very strong but not growing,'' David Seiders, chief economist at the National Association of Home Builders, said in an interview. ``I think we're seeing affordability problems created by ongoing strong price appreciation in some markets.''
Housing affordability is at a 14-year low, according to an Aug. 3 report from the National Association of Realtors. The group said home sales are ``close to a peak'' and prices will rise next year at about half the rate of 2005.
A report last week from National City Corp. in Cleveland said 31 percent of the U.S. housing market was ``extremely overvalued,'' presenting ``a high risk of future price correction.''
Falling affordability will contribute to a drop in sales next year of new and existing homes, according to the Realtors association and Freddie Mac, the second-biggest U.S. mortgage purchaser.
Affordability
``Affordability is probably getting a little stretched,'' Jim O'Sullivan, senior economist at UBS Securities in Stamford, Connecticut, said. ``Even without much of a rise in long-term rates, housing is likely to come off its peak.''
The percentage of homes costing $250,000 or more fell to 37 percent, the lowest level since March 2004.
The average rate on a 30-year fixed mortgage was 5.66 percent in July, according to Freddie Mac. While that was up from 5.60 percent the month before, it remained within half a percentage point of the 40-year low of 5.21 percent set in June 2003.
Mortgage rates have since risen and ended last week at 5.8 percent, according to Freddie Mac. The average mortgage rate for this year is expected to be 5.9 percent, the National Association of Realtors said on Aug. 9.
Mortgage rates ``are still at levels that are conducive to home sales,'' Quicken's Walters said. ``What's driving housing further is a pretty vibrant employment picture in most parts of the country.''
Jobs
The U.S. has added jobs every month since June 2003 and wages have been rising. Workers' average hourly earnings rose 0.4 percent last month, the most in a year.
New homes sales are recorded at the time a contract is signed and are a leading indicator of housing demand. They account for about 15 percent of the residential housing market. Sales of previously owned homes make up the rest.
Higher wages and home sales near record highs may support consumer spending the rest of this year, economists including ClearView Economics's Ken Mayland said. Home sales tend to lead to sales of furniture and appliances, he said.
Consumer spending is expected to grow 3.6 percent this year, the median of 66 economists' forecasts in a Bloomberg News survey earlier this month. Spending this quarter may grow at a 3.7 percent annual pace, according to the survey. Economists polled in July had expected spending to rise 3.2 percent from July through September.
To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net
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