Sales of New Homes Increase to Highest Level in Seven Years

10.07.2015
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Purchases of new homes rose in May to the highest level in seven years, signaling the industry is gaining momentum heading toward the second half of the year.

Sales climbed 2.2% to a 546,000 annualized pace, exceeding all forecasts in a Bloomberg survey of economists and the most since February 2008, Commerce Department data showed Tuesday in Washington. Readings for February through April were revised up.

Stronger employment and income prospects are bolstering would-be home buyers, allowing them to take advantage of relatively cheap borrowing costs even as home prices appreciate. The sales gains indicate residential real estate should withstand increases in borrowing costs as the Federal Reserve prepares to start tightening policy later this year.

“People are feeling more secure about their jobs, and when you’re feeling more secure about your job, you’re more likely to put down roots and buy a home,” Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, N.C., said before the report.

The median forecast of 71 economists surveyed by Bloomberg called for the pace to accelerate to 523,000. Estimates ranged from 499,000 to 545,000. The Commerce Department revised the April reading up to a 534,000 pace from a previously estimated 517,000.

The Commerce Department’s report on new-home sales showed the median sales price declined 1% from May 2014 to $282,800, today’s report showed.

The increase in demand last month was led by an 87.5% surge in the Northeast, the biggest gain since July 2012. The West climbed 13.1%, while sales fell in the Midwest and South. The setback in the South could have been caused by the floods that inundated parts of Texas last month.

The supply of homes at the current sales pace declined to 4.5 months from 4.6 months in April. There were 206,000 new houses on the market at the end of May, the same as in the prior month.

New-home sales, which account for almost 10% of the residential market, are tabulated when contracts are signed. That makes them a timelier barometer than transactions on existing homes.

Previously owned home purchases rose in May to their fastest pace since November 2009, National Association of Realtors data showed Monday. Closings increased 5.1% to a 5.35 million annualized rate as the share of sales to first-time buyers matched the strongest level since September 2012.

The housing industry has shown gradual gains in the second quarter after the world’s largest economy slumped in the first three months of the year.

While housing starts declined 11.1% in May to a 1.04 million annualized rate, that followed a revised 1.17 million pace in April to cap the best back-to-back readings since late 2007, Commerce Department figures showed last week. Permits for future projects rose to the highest level in almost eight years.

Homebuilders are feeling better about the outlook for sales. The National Association of Home Builders/Wells Fargo builder sentiment gauge rose to 59 this month, the strongest since September and exceeding all projections in a Bloomberg survey, from 54 in May.

Relatively low borrowing costs also are still supporting would-be buyers who can qualify for credit. The average rate for a 30-year fixed mortgage was 4% in the week ended June 18, according to data from Freddie Mac. While that’s the second-highest rate this year, it’s still well below the 6.06% average from 2003 to 2007, when home sales boomed.

“Housing overall, given the still-low level of mortgage rates, remains quite affordable,” Fed Chair Janet Yellen said in a June 17 press conference after the policy makers’ two-day meeting in Washington. At the same time, “anyone who doesn’t have a pristine credit rating finds it very difficult at this point to qualify for a mortgage.”

The central bankers decided at their June meeting to keep the benchmark interest rate near zero, where it’s been since 2008. Most economists surveyed by Bloomberg project the Fed will announce its first rate increase in nine years in September.

 

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