U.S. New Home Sales Drop 1% In July

The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains and low mortgage rates.

WASHINGTON (AP) โ€” Americans likely bought slightly fewer new homes in July, although the sales pace is expected to remain near the five-year highs reached in the previous month.

Economists forecast that new-home sales dropped just 1 percent last month to a seasonally adjusted annual rate of 492,000, according to a survey by FactSet. The dip would come after sales jumped more than 8 percent in June to an annual rate of 497,000, the most since May 2008.

The Commerce Department will issue the report at 10 a.m. EDT Friday.

The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains and low mortgage rates. But mortgage rates have risen a full percentage point since May and now threaten to steal some of the market's momentum.

Higher mortgage rates were likely a key reason sales surged in June, as many buyers moved to lock in lower rates before they climbed further. Some economists speculate that the rush to buy in June may have held back sales in July.

Even so, most economists expect the housing recovery to persist and new-home sales to stay solid. Many note that mortgage rates remain relatively low by historical standards. The average rate on a 30-year mortgage this week was 4.58 percent, according to Freddie Mac.

New-home sales have jumped 38 percent in the 12 months ending in June, the biggest annual increase in more than 20 years. The annual pace is still below the 700,000 that is consistent with a healthy market.

The strong gain in the past year is part of a broader recovery in housing, which has provided critical support to the economy this year and last. Home prices and construction have also increased, boosting Americans' wealth and creating more construction jobs.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.

Sales of previously occupied homes jumped last month to the highest level in nearly four years, according to the National Association of Realtors. Economists say that higher rates may have pushed up those sales as well.

Higher mortgage rates may affect the new-home market faster because the July sales report reflects signed contracts. Sales of previously occupied homes measure closed deals and reflect mortgage rates locked in a month or two earlier.

New-home sales have risen while the supply of homes on the market has stayed lean. That has pushed up prices and made builders more confident. A measure of builder confidence rose to nearly an eight-year high in August.

But builders broke ground on the fewest single family homes in eight months in July, the government said last week, also a possible sign of higher rates slowing the housing recovery. Most economists expect new home building to rebound in the coming months.

 

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