Sales of new U.S. homes little changed after August revised down

WASHINGTON – Purchases of new homes in the U.S. were little changed in September after the prior month was revised down, showing an uneven recovery that will limit how much residential real estate contributes to growth.

Sales rose 0.2 percent to a 467,000 annualized pace from a 466,000 rate in August that was 7.5 percent weaker than previously estimated, Commerce Department data showed today in Washington. The median forecast of 75 economists surveyed by Bloomberg called for the pace to decelerate to 470,000.

Home sales are struggling to accelerate further as restrictive lending rules and wage gains that barely keep pace with inflation prevent lower-income buyers from stepping into the market. The recent drop in mortgage rates will probably help prop up residential real estate heading into 2015.

“If things are improving, it’s at a fairly slow rate,” Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “The underlying trend a year from now will probably be better than it is now” with “gradual improvement supported by gradual improvement in the labor market and Americans’ confidence.”

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Last month’s sales rate was still the strongest since July 2008. As the August markdown attests, the preliminary figures can be subject to large revisions. The Commerce Department’s report said the September reading will show between a 15.5 percent drop and 15.9 percent gain with 90 percent confidence.

Economists’ estimates in the Bloomberg survey ranged from 433,000 to 513,000.

Mortgage rates

Declining borrowing costs will help make big-ticket purchases such as homes more affordable. The average rate on a 30-year, fixed mortgage fell to 3.92 percent in the week ended Oct. 23, the lowest since June 2013, according to Freddie Mac data. The rate has dropped by 0.27 percentage point over the past three weeks as concern over slowing global growth pushed investors out of stocks and into the safety of Treasury securities, causing yields to drop on the benchmarks used to calculate home-lending costs.

New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than existing homes.

Purchases of previously owned homes, which are counted when a contract closes, climbed in September to the highest level in a year, National Association of Realtors data showed earlier this week. The 2.4 percent gain pushed sales to a 5.17 million annualized rate.

Existing homes

At the same time, the existing-home sales figures showed that participation among first-time buyers is still languishing. Those consumers made up 29 percent of the market for a third month in September, below the historical average around 40 percent.

Builders are staying busy by focusing on rental housing. Work began on more homes in September with a gain in multifamily projects such as apartment buildings outpacing single-family properties, Commerce Department data showed last week. Permits to build also rose.

“The housing market has entered a period of more modest growth than we experienced in 2012 and 2013,” Larry Seay, chief financial officer at Meritage Homes Corp., a Scottsville, Arizona-based builder, said at an Oct. 1 finance conference. “But we believe it is still in the early innings of recovery and has a potential to grow for many years.”

While household formation has been “running well below normal levels,” the U.S. population has grown and employment is picking up, he said.

“More people than ever, with more jobs than ever, represents a tremendous amount of potential demand for new housing since vacancy rates are very low today,” Seay said.

Payroll gains are on pace for their best performance in 15 years. Through September, the economy has added an average 226,670 per month after a 194,250 average last year.

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