New home sales dip, but prices scale five-year high

WASHINGTON Wed Sep 26, 2012 2:54pm EDT

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012. REUTERS/Jonathan Ernst

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012.

Credit: Reuters/Jonathan Ernst

Related Topics

WASHINGTON (Reuters) - New home sales held near two-year highs in August and prices vaulted to their highest level in more than five years, adding to signs of a broadening housing market recovery.

The Commerce Department said on Wednesday sales slipped 0.3 percent to a seasonally adjusted 373,000-unit annual rate, but the decrease was from an upwardly revised 374,000-unit July pace that was the fastest since April 2010.

From a year ago, sales were up 27.7 percent last month.

At the same time, the median price of a new home increased a record 11.2 percent in August to $256,900 -- the highest level since March 2007. Compared to August last year, the median sales price jumped 17 percent, the largest rise since December 2004.

The report was in keeping with other data that have suggested a turn-around in the housing market, which collapsed in 2006, igniting the 2007-09 recession.

Home resales surged last month, homebuilder sentiment jumped to a six-year high in September and home prices in 20 major metropolitan areas rose in July for a sixth straight month, recent reports have shown.

Still, the housing market lacks sufficient strength to take the baton from the faltering manufacturing sector as the main driver of the U.S. economic recovery.

"There are increased signs that the housing recovery is now on a more sustainable path, though its impact on overall economic activity will remain relatively modest at best over the near-term," said Millan Mulraine, a senior economist at TD Securities in New York.

U.S. financial markets were little moved by the data amid worries Spain's reluctance to ask for a full-blown bailout would prolong Europe's debt crisis. However, an index of housing-related stocks fell as the pace of home sales was not as strong as expected.

MISSING PISTON

The Federal Reserve targeted housing this month as a channel to spur faster economic growth.

Fed Chairman Ben Bernanke said housing was the "missing piston" in the recovery and the central bank announced it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly.

Those measures have pushed mortgage rates to record lows, and led to a rebound in demand for loans to purchase homes last week, a second report showed. Fixed 30-year mortgage rates hit an all-time average low of 3.63 percent last week.

Home building is expected to add to gross domestic product growth this year for the first time since 2005.

Home builder Lennar Corp on Monday reported a 44 percent jump in orders for new homes during the third quarter, the sixth straight quarter of growth.

While residential construction accounts for only about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created.

In addition, economists said rising home values could support consumer spending.

"The turn in home prices is important, not only because the housing industry is an important employer, but also the wealth effect created by rising home prices can lift consumer spending on other big-ticket items," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

The housing recovery is being driven by dwindling supplies of homes on the market, especially distressed properties that tend to sell well below their cost of construction.

Home builders are also keeping inventories lean.

The inventory of new homes on the market held near record lows last month. At August's sales pace it would take 4.5 months to clear the houses on the market, unchanged from July.

"For years after the collapse in housing, home builders have kept very lean inventories of new homes so any marginal pickup in sales activity leads to a notable pickup in building," said Ellen Zentner, a senior economist at Nomura Securities International in New York.

New home sales were up in three of the four regions, surging 20 percent to a near two-year high in the Northeast. Sales in the South fell 4.9 percent.

(Editing by Andrea Ricci and Tim Ahmann)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (11)
One could infer that there are a couple of forces at play here. First houses on the higher end of the market are selling as a result of equity market excitement due to QE’s. This would tend to pull the median price up. Of course our central bank’s ZIRP (or NIRP) policies have reduced very low rates for mortgages. Good news if you can qualify for a loan and most of those who can qualify are relatively affluent.

I doubt that this improvement is sustainable and I doubt that many will chase the market here. This data reflects the fact that those with the least need to borrow are the same people who are most likely to qualify for a loan. Obvious, don’t you think?

Sep 26, 2012 10:27am EDT  --  Report as abuse
reality-again wrote:
In this case, stronger prices are a seasonal factor, and it’s been so every year. Residential RE prices always go up in the summer, and dip in the winter.
Lower sales volume indicate a weak market.

Sep 26, 2012 10:29am EDT  --  Report as abuse
reality-again wrote:
In this case, stronger prices are a seasonal factor, and it’s been so every year. Residential RE prices always go up in the summer, and dip in the winter.
Lower sales volume indicate a weak market.

Sep 26, 2012 10:29am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.