Bloomberg News

Fewer New Homes Purchased in U.S. Than Forecast in October

November 29, 2011

(Updates with markets in fifth paragraph.)

Nov. 28 (Bloomberg) -- Fewer U.S. new homes were purchased in October than forecast as builders headed for the weakest year on record.

Sales increased 1.3 percent to a 307,000 annual pace, data from the Commerce Department showed today in Washington. The median estimate of 70 economists surveyed by Bloomberg News projected a 315,000 rate. Demand is on pace to reach 301,000 this year, less than the 323,000 in 2010 that was the lowest since data-keeping began in 1963.

An overhang of distressed properties in the foreclosure pipeline that is weighing on prices of existing houses may keep luring buyers away from new construction. A jobless rate that has been hovering around 9 percent or higher for more than two years signals demand will take time to pick up.

“It looks like 2011 will be another year the homebuilders would like to forget,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “Sales remain depressed, lending standards are tight, and pressure on pricing remains due to an ongoing influx of distressed, used homes.”

Stocks rose, snapping a seven-day decline in the Standard & Poor’s 500 Index, after Thanksgiving retail sales climbed to a record and euro-area leaders were said to boost efforts to end the debt crisis. The S&P 500 jumped 3.2 percent to 1,194.82 at 10:03 a.m. New York time. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.04 percent from 1.97 percent late on Nov. 25.

Survey Results

Economists’ estimates ranged from 300,000 to 375,000. The government revised September demand to a 303,000 rate from a previously reported 313,000.

The increase in purchases was paced by a 22 percent jump in the Midwest and a 15 percent gain in the West, an area where properties tend to be more expensive. Demand in the South, where houses are cheaper, dropped 9.5 percent.

The regional breakdown, with sales rising in the West and falling in the South, probably helped push up costs. The median price of a new house purchased last month climbed 4 percent from October 2010 to $212,300.

The supply of homes at the current sales rate fell to 6.3 month’s worth from 6.4 months in the prior month. There were 162,000 new houses on the market at the end of October, matching the September level as the fewest on record.

Previously-Owned Houses

Sales of previously owned homes, which make up about 94 percent of the market, unexpectedly rose 1.4 percent to a 4.97 million annual rate in October, figures from the National Association of Realtors showed Nov. 21. The median price dropped 4.7 percent from October 2010. Cash deals accounted for 29 percent of the transactions, while distressed properties, including foreclosures and short sales, made up 28 percent.

New home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later.

Builders have held back on starting new projects this year. Housing starts fell 0.3 percent to a 628,000 rate in October, and have averaged a rate of 592,000 so far this year, Commerce Department data show. That compares with last year’s tally of 587,000, the second-fewest on record after 2009’s record low of 554,000.

With falling home prices continuing to weigh on household wealth and consumer spending, some Federal Reserve officials have called for more accommodative policy.

Fed on Housing

Fed Bank of New York President William C. Dudley said this month that if the central bank opted to purchase more bonds to lower interest rates and stimulate the economy, “it might make sense” for much of those purchases to consist of mortgage-backed securities, which would have a “greater direct impact on the housing market.”

The lack of demand this year came as a shock to builders like Atlanta-based Beazer Homes USA Inc., making them reluctant to forecast the outlook.

“Even though I do believe that national housing starts are likely to be higher in 2012, we have not assumed any improvement in national housing activity as part of our financial planning for the year,” Allan Merrill , Beazer’s chief executive officer said during a Nov. 15 call with analysts. “Our predictions about improving national housing starts for fiscal year 2011 proved to be substantially too optimistic, so I’m reluctant to go on the record with any more macro predictions.”

--Editor: Carlos Torres

Company News:

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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