Fewer new U.S. homes were sold in June than forecast and May data showed the biggest downward revision on record, painting a picture of a housing market that is struggling to gain traction.
Sales of newly built homes declined 8.1 percent to a 406,000 annualized pace, the fewest since March and less than any economist surveyed by Bloomberg forecast, Commerce Department figures showed today in Washington. That followed a May reading of 442,000 that was 12.3 percent lower than estimated last month.
Restrictive lending rules, limited land supply, higher mortgage rates and more expensive properties are keeping a lid on how much the housing recovery can accelerate. Continued employment gains and bigger increases in wages will be needed to support further growth in the industry, which has stalled since interest rates started climbing last year.
“On the demand side, you’ve got an increase in mortgage rates relative to where they were a year ago, higher home prices and you’ve had relatively lackluster growth in real wages,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. In general, “if there was one word to describe the housing recovery, it’s been disappointing. It has bounced off the bottom, but it’s not especially strong.”
Stocks dropped, erasing earlier gains after the report. The Standard & Poor’s 500 Index was little changed at 1,987.43 at 10:11 a.m. in New York, after being up as much as 0.2 percent. The S&P Homebuilding Index dropped 3.2 percent.
The median forecast of 76 economists surveyed by Bloomberg called for a decrease to 475,000. Estimates (NHSLTOT) ranged from a June sales rate of 440,000 to 525,000. The May reading was revised down from a previously reported 504,000 pace that would have been the strongest since June 2008.
Another report today showed the number of Americans filing applications for unemployment benefits dropped last week to the lowest level in more than eight years, reflecting what could be a pickup in auto making during a typically slow time of year.
Jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006, according to the Labor Department. Applications can be volatile in July because the timing and extent of auto factory closings to re-tool for the new model year is often difficult for the government to gauge.
The median price of a new home increased 5.3 percent last month from a year ago to $273,500.
Purchases decreased in all four regions in June, with a 20 percent drop in the Northeast and a 9.5 percent decline in the South.
The supply of homes at the current sales rate climbed to 5.8 months, the highest since October 2011, from 5.2 months in May. There were 197,000 new houses on the market at the end of June, the most since October 2010.
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 existing homes increased 2.6 percent to a 5.04 million annual rate last month, led by gains in all four U.S. regions, figures from the National Association of Realtors showed earlier this week. Prices advanced at the slowest pace since March 2012 and inventories rose to an almost two-year high.
Slower price gains in the housing industry may lure some buyers into the market, with first-time purchasers accounting for 28 percent of all sales in existing home sales in June, up from 27 percent in May.
Jeffrey Mezger, chief executive officer at KB Home (KBH:US), said last month he’s also seeing some signs that the first-time homebuyer is returning. The Los Angeles-based company reported a profit for its fiscal second quarter as selling prices and orders increased.
“While these favorable trends are very encouraging, it is still going to take some time until we reach historical new home activity levels,” Mezger said in a June 27 earnings call. “As a result, many outlooks on the housing industry are measured, but we are optimistic as we are building a real growth story in the current environment.”
Still, recent housing data have been choppy. Beginning home construction declined in June to a nine-month low as a record plunge in the South swamped gains in the rest of the U.S., figures from the Commerce Department showed last week. Starts fell 9.3 percent to a 893,000 annualized rate from a 985,000 pace in May that was weaker than initially estimated,
At the same time, confidence among U.S. homebuilders rose more than forecast in July, with the National Association of Home Builders/Wells Fargo sentiment measure climbing to a six-month high of 53 from 49 in June.
The inconsistent data corroborate Federal Reserve Chair Janet Yellen’s Senate testimony last week that progress in the housing market has been lackluster.
While housing has recovered from its lows, “activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing,” Yellen said last week during her semi-annual testimony to the Senate Banking Committee.
The average rate for a 30-year fixed mortgage was 4.13 percent in the week ended July 17, according to Freddie Mac in McLean, Virginia. While down from 4.53 percent at the start of the year, it’s higher than the 3.35 percent in May 2013.
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