New home sales hit five-year high, prices soar
WASHINGTON (Reuters) - New U.S. home sales vaulted to a five-year high in June, while other data on Wednesday showed an acceleration in factory activity in July, boosting hopes of a third-quarter pick-up in economic growth.
Showing no signs yet of slowing in the face of higher mortgage rates, single-family home sales increased 8.3 percent to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008, the Commerce Department said.
Economists, who had expected sales to advance only to a 482,000-unit rate, said buyers sitting on the fence had probably rushed into the market to lock in lower rates in anticipation of mortgage rates moving even higher.
"The recent increase in mortgage rates hasn't slowed demand as long as home affordability remains high," said Bob Walters, chief economist at Quicken Loans in Detroit. "We are, however, seeing an increased urgency from potential new home buyers as they move to secure today's historically low rates."
Though the government revised down sales from March through May by a total 38,000 units, the overall tone of the report was bullish. Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992.
There had been worries that higher borrowing costs could crimp the housing market recovery after a report on Monday showed a surprise drop in home resales in June.
Mortgage rates have been rising in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year. According to Freddie Mac, the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, its highest level since October 2011.
Still, mortgage rates, which edged lower last week, remain low by historical standards and economists, including Fed Chairman Ben Bernanke, believe the fundamentals in the housing market are strong enough to withstand the rise in borrowing costs.
SUPPORT FOR FACTORIES
The strengthening housing market is lending support to manufacturing, which has been hit by deep federal government spending cuts and slowing global demand.
A rebound in new orders helped to lift factory activity to a four-month high in July. Financial data firm Markit's "flash," or preliminary, U.S. Manufacturing Purchasing Managers Index rose to 53.2 this month from 51.9 in June.
A reading above 50 indicates expansion in the nation's factory sector. The acceleration in factory activity offered a hopeful sign for the economy, which has shifted into low gear amid tighter fiscal policy.
The economy is expected to have expanded at a rate below 1 percent in the second quarter, a sharp slowdown from the 1.8 percent pace recorded in the first three months of the year.
"The improvement in the July PMI suggests that the manufacturing sector has picked up a little momentum lately after a pretty soft second quarter," said Daniel Silver, an economist at JPMorgan in New York.
U.S. financial markets were little moved by the data.
While the inventory of new homes on the market last month increased to its highest level since August 2011, supply remains tight, putting upward pressure on prices. The median new home price increased 7.4 percent in June from a year ago.
Economists said the strong sales pace, which is keeping supply low, should spur builders to break ground on new projects and boost gross domestic product growth.
"We believe housing demand can continue to improve despite the fairly sharp increase in mortgage rates in recent months," said Michael Gapen, a senior economist at Barclays in New York.
"However, we would expect rising interest rates to pass through to housing activity with a lag, and we look to future reports to further assess the response of housing demand to higher mortgage rates."
At June's sales pace it would take 3.9 months to clear the houses on the market, down from 4.2 months in May. A supply of six months is normally considered a healthy balance between supply and demand.
Sales last month rose in three regions, rising to a five-year high in the South. They, however, fell 11.8 percent in the Midwest.
(Reporting by Lucia Mutikani, additional reporting by Steven C. Johnson in New York; Editing by Paul Simao)