Sales of newly built homes dropped 13.4 percent to a seasonally adjusted annual rate of 394,000, the Commerce Department said on Friday. That is the lowest in nine months. And sales fell from a rate of 455,000 in June, which was revised down from a previously reported 497,000.
The housing rebound that began last year has helped drive economic growth and create more construction jobs. But mortgage rates have climbed a full percentage point since May. The increase has begun to steal some momentum from the market.
Sales of new homes are still up 7 percent in the 12 months ended in July. Yet the annual pace remains well below the 700,000 that is consistent with a healthy market.
July’s drop “may mark an ‘uh-oh’ kind of moment for the housing recovery,” said Mark Vitner, an economist at Wells Fargo Securities.
Homebuilder stocks declined sharply on Friday, even as overall market indexes rose. Shares of Toll Brothers, D. R. Horton and Lennar — three of the nation’s largest builders — all fell more than 2.5 percent at the close of trading.
And major homebuilders’ shares have been dropping steadily since late May. The slide began after the Federal Reserve chairman, Ben S. Bernanke, first signaled that the Fed might reduce its bond purchases later this year. The bond purchases have helped keep mortgage rates and other borrowing costs low.
The average rate on a 30-year mortgage reached 4.58 percent this week, according to Freddie Mac. That’s up from 3.35 percent in early May and the highest in two years.
Potential buyers appear to have noticed that financing a home purchase has become more expensive. The number of Americans applying for mortgages to buy homes has plummeted 16 percent since the end of April. And in July, builders began work on the fewest single-family homes in eight months. Most economists expect the housing recovery will continue, albeit at a slower pace.
“We’ve been spoiled by low rates,” Greg McBride, senior financial analyst at Bankrate.com. “People are gnashing their teeth now over a rate we had never seen four years ago.” He notes that, based on their figures dating back to 1985, rates on the 30-year loan had never sunk below 5 percent until 2010.
The impact of higher mortgage rates has surfaced in the new-home market faster than the resale market because the new-home sales are measured when contracts are signed.
Higher rates may have also caused potential buyers to cancel some purchases of new homes. Mr. Vitner says that may explain why sales were revised down in May and June. Most of the revisions occurred in sales of homes not yet under construction. Buyers do not need mortgages until construction begins.
Sales of previously occupied homes reached a nearly four-year high last month. But that report measured completed sales, which typically reflects mortgage rates locked in a month or two earlier.
The jump likely reflected a rush by home buyers to lock in lower rates. Next week, a measure of contract signings in July will be released. Many economists expect that will drop.
Fed officials are closely watching the impact of higher mortgage rates on the housing recovery. The drop in sales could strengthen the hand of those Fed members who want to delay reducing the bond purchases.
Article source: http://www.nytimes.com/2013/08/24/business/economy/sales-of-new-homes-fall-sharply-as-mortgage-rates-rise.html?partner=rss&emc=rss