New home sales fall, but U.S. economy stays on solid ground

WASHINGTON Mon Aug 25, 2014 1:43pm EDT

Construction workers frame a new subdivision project of residential homes in Glenelg, Maryland September 25, 2013. REUTERS/Gary Cameron

Construction workers frame a new subdivision project of residential homes in Glenelg, Maryland September 25, 2013.

Credit: Reuters/Gary Cameron

WASHINGTON (Reuters) - Sales of new U.S. single-family homes fell for a second straight month in July, but a surge in the stock of properties on the market and slower price gains should help stimulate demand in the months ahead.

Other data on Monday showed activity in the vast services sector slowed again in August. The reports, however, did little to change views the economy is on a solid growth path, given relatively strong job growth and manufacturing activity.

"The housing market continues to recover," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "The fundamentals of strengthening job growth and hopefully stronger wage gains are still favorable."

New home sales slipped 2.4 percent to a seasonally adjusted annual rate of 412,000 units, the lowest level since March, the Commerce Department said. While sales were weaker than economists expected, data for the past three months was revised to show 33,000 more new homes sold than previously reported.

The soft July sales pace is at odds with other data that have suggested the housing market recovery is back on track after buckling in the second half of last year.

Data last week showed a jump in new home construction and increased confidence among homebuilders about future sales and buyer traffic. Home resales hit a 10-month high in July.

Economists took the new homes sales data with a grain of salt given it is highly volatile from month to month. Compared to July last year, new home sales were up 12.3 percent.

Separately, financial data firm Markit said its preliminary services Purchasing Managers Index dipped to 58.5 this month from 60.8 in July. Still, the index remained well above the 50 threshold that separates expansion from contraction, and it continued to mirror the strong gains seen in manufacturing.

The data suggested economic growth will continue to move forward at a steady clip in the third quarter, after bouncing back from a weather-related slump at the start of the year.

HOUSING VOLATILITY

Housing shares on Wall Street underperformed the broader market, where the Standard & Poor's 500 index .SPX rallied to a record high, crossing the 2,000 threshold for the first time.

The housing index .HGX was down slightly, with homebuilder DR Horton (DHI.N) off 1.3 percent and Pulte Group (PHM.N) down 0.3 percent. Toll Brothers (TOL.N) fell 1.1 percent.

A run-up in mortgage rates and a shortage of homes on the market that pushed up prices had cut into sales in the second half of last year, leading the Federal Reserve to express concern at the sluggish housing recovery.

"We believe that ongoing volatility in housing will be one factor keeping the Fed from raising rates prematurely," said Gennadiy Goldberg, an economist at TD Securities in New York.

But housing inventory is picking up and home price appreciation is slowing. The inventory of new houses on the market increased to a near four-year high, helping to restrain prices.

The median sales price increased 2.9 percent from a year ago, marking a sharp slowdown from June, when prices were up 7.8 percent year-on-year.

At July's sales pace it would take 6.0 months to clear the supply of houses on the market, the highest since October 2011.

(Reporting by Lucia Mutikani; Additional reporting by Ryan Vlastelica in New York; Editing by Andrea Ricci)

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Comments (38)
BeRealistic wrote:
This headline from Thursday: “U.S. housing, jobs data bolster economic outlook” – come on people, stop getting excited about those little slivers that within days, sometimes hours, get revised, refuted, or contradicted. There is NO recovery and things are not going to get any better under this racist, clueless, uncaring, pathetic POS in the White House and his destructive minions whose primary function is power retention.

Aug 25, 2014 10:53am EDT  --  Report as abuse
BeRealistic wrote:
And today I am back to having no voice on the comments section. Reuters, please hire that high school intern to fix your comments section.

Aug 25, 2014 11:09am EDT  --  Report as abuse
GFY365 wrote:
It truly is amazing to watch the stock market soar despite so much negative feedback. Very scary to think of what is coming when the world realizes the true nature of the ecomomy……

Aug 25, 2014 11:46am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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