August new home sales rise 7.9%

New home sales improved last month, but still fell below economists' consensus forecast and the annual sales rate was weaker than in May and June.

New home sales rebounded from a July dip in August, as builders sold new houses and condos at an annual rate of 421,000, the Census Bureau said Wednesday.
The number fell slightly below economists' expectations of about 425,000 annualized sales, but are consistent with upbeat earnings reports Tuesday by big builders Lennar and KB Home.

Sales climbed 7.9% from the 390,000 annual rate recorded in July. The government had initially said builders sold homes at an annual rate of 394,000 in July.

Weak housing data from July was one reason the Federal Reserve last week delayed an expected slowdown in bond purchases it has used to keep mortgage rates low.

Contracts to sell existing homes slipped by 1.3% and the more volatile new home sales dropped by more than 14%, injuring prospects for a rebound in construction and related employment. The average 30-year fixed mortgage rate, at 4.5% last week, is more than a percentage point higher than in early May, according to Freddie Mac.

``I can say with a lot of confidence this is all about credit, its cost and availability,'' said Chris Flanagan, head of mortgage research for Bank of American Merrill Lynch. ``If the Fed were targeting a rate (for 30-year fixed rate mortgages) it would be under 4%.''

The new data still includes some signs of weakness. Sales are not yet back to the pace of May and June, according to the Census Bureau, and new home prices dropped in August. The National Association of Realtors forecasts that Americans will buy 5.1 million existing homes this year and 5.2 million next year, a slow-growth trend it blames on tight credit, questions about affordability with higher interest rates, and a shortage of homes for sale.

"New home sales were up in August, but this market has lost momentum,'' IHS Global Insight economist Patrick Newport said.

IHS blamed what it called temporary factors for the market lull, which has seen sales fall by an annual pace of about 25,000 units since the first half of this year. Builders are having trouble getting credit, and there is a shortage of available, buildable lots, Newport said.

Likewise, Merrill Lynch forecasts that builders will sell 438,000 new homes for the year, and that sales will rise about 21% next year.

One reason for the better outlook is that interest rates are once again falling, Flanagan said. Consumers will likely be able to get 30-year mortgages at rates of 4% or lower as the perception that the Fed is going slow on tightening persists, he added. But whether sales rise depends on whether people who have held off on creating new households are confident enough of their job prospects to strike out on their own, he said.

Last month's largest gains in new home-sales came in the southern part of the U.S., where sales rose by 32,000, or 15%, from last month after an even larger decline in July. Sales in the Midwest climbed by an estimated 10,000 units, to 61,000. Sales fell by 15% in the western U.S., the government said.

The median price of homes sold dropped to $254,600 from $257,200 in July. But average prices remain near record highs.

Article curated from USA Today