AP News

US new home sales expected to slip slightly

WASHINGTON (AP) — The Commerce Department reports on sales of new homes in January. The report is scheduled to be released at 10 a.m. EST Wednesday.

SALES DIP: The forecast is that sales slipped 3.4 percent to a seasonally adjusted annual rate of 400,000 in January, according to a survey by FactSet.

WINTER WEATHER: If new home sales fall in January, it would mark the third straight monthly decline. Purchases in December fell 7 percent to a seasonally adjusted annual rate of 414,000, after a 3.9 percent drop in November.

EXPECTED REBOUND: Despite sales weakness during the winter, the expectation is that sales will start rising again as snow melts and the all-important spring sales season gets under way.

Sales for all of 2013 rose to the highest point in five years, increasing 16.4 percent to 428,000. That was the best showing since 2008.

Economists expect sales to grow more in 2014 although they do not expect the gain to be as robust as the 2013 increase.

Price increases are expected to moderate in 2014 as well. The Standard & Poor's/Case-Shiller 20-city home price index rose by a healthy 13.4 percent in 2013. That was the largest calendar gain in eight years.

Economists are looking for further sales gains as the economy continues to gather momentum and more people are able to get jobs. Further gains in home sales will spur more jobs in the construction industry and help to support economic growth.

The National Association of Realtors reported last week that sales of existing homes plummeted in January to an annual rate of 4.62 million units. That was down 5.1 percent from the December pace.

Freezing temperatures and snowstorms have caused a slip in housing activity this summer while higher mortgage rates and higher prices had acted to slow growth earlier in the year.

The average rate on a 30-year mortgage rose to 4.33 percent last week, up from 4.28 percent the previous week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 percent. Those increases began after the Federal Reserve signaled last spring that it would expected to start slowing its bond-buying program before the end of the year.

Those Fed bond purchases were designed to keep long-term interest rates low to stimulate more borrowing and give the economy a boost. The Fed in December and January did announce $10 billion reductions in its bond purchases, taking them from $85 billion per month down to $65 billion per month.

It is expected as long as the economy and the job market improve, the Fed will keep reducing bond purchases in moderate steps until the program is phased out entirely at the end of this year.

Economists believe even with the Fed phasing out its support, home sales will keep increasing because mortgage rates are expected to remain close to the historic lows they hit last year. The economy is also expected to show greater strength with many analysts expecting overall growth to climb to close to 3 percent this year, up from just 1.9 percent in 2013.

The rebound in growth will be helped by a lessening of the drag from the federal government. It is estimated that growth was reduced by about 1.5 percentage point last year by federal tax increases and across-the-board spending cuts enacted to tame soaring budget deficits.

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