January 27, 2014 / 3:10 PM / 5 years ago

New home sales fall, but private sector expands

WASHINGTON (Reuters) - Sales of new U.S. single-family homes fell more than expected in December, but lean inventories and steady price gains suggested the housing market recovery remained intact.

New housing construction is seen in Poolesville, Maryland, October 23, 2012 file photo. REUTERS/Gary Cameron

Economists largely shrugged off the second straight month of decline in sales, blaming frigid temperatures. Other data on Monday showed an acceleration in services sector growth in January, backing views of sustainable strength in the economy.

“It’s cold out there for the economy. The drop in new home sales is not a sign the economy at large is starting to slow in a worrisome manner,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The Commerce Department said new home sales fell 7.0 percent to a seasonally adjusted annual rate of 414,000 units. Sales were at a 445,000-unit pace in November and economists had expected them to slow to only a 457,000-unit rate in December.

Apart from the bitterly cold weather, last month’s decline in sales was likely a continuation of the payback after October’s outsized 14.9 percent increase. Sales in the Northeast, which was hard hit by cold temperatures, tumbled 36.4 percent to their slowest pace since June 2012.

Home sales are traditionally weak during the winter, but a cold snap last month could have exaggerated the magnitude of the slowdown. New home sales stumbled in the summer in the aftermath of a spike in mortgage rates, but economists said a lack of supply could also be curbing activity.

“There has been some pause in sales, some of that may be supply-related rather than demand-related,” said Samuel Coffin an economist at UBS in New York. “If you look at the inventory data for new and existing homes, they don’t look consistent with a big fall-off in demand.”

Last month, the supply of houses on the market fell 2.8 percent to 171,000 units. That was the lowest since July.

At December’s sales pace it would take five months to clear the supply of houses on the market. That was up from 4.7 months in November. A supply of six months is normally considered a healthy balance between supply and demand.

Housing is expected to have contributed significantly to economic growth last year, through residential investment and rising home prices that have boosted the net worth of households, allowing for greater discretionary spending.


For the fourth-quarter, however, the contribution likely moderated a bit from the July-September period.

The soft home sales pace combined with emerging markets worries to push U.S. stocks down on Monday. The dollar was little changed against a basket of currencies, while prices for U.S. Treasuries pared earlier losses.

Separately, financial data firm Markit said its January “flash” or preliminary services sector gauge rose to a four-month high of 56.6 from 55.7 last month. A reading above 50 signals expansion in economic activity.

“U.S. service providers reported a busy January, providing an important signal that the economy remains in good health at the start of the year,” said Markit chief economist Chris Williamson.

“Growth of business activity picked up from the already robust pace seen in December, and optimism about prospects for the year ahead rose to one of the highest levels we’ve seen since the financial crisis.”

The solid Markit reading feeds into expectations for stronger economic growth this year. That has economists confident that the housing market will regain some lost ground, even in the face of higher mortgage rates.

“We expect new home sales activity should pick up in the coming year along with improving economic growth,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

For all of 2013, a total of 428,000 new single family homes were sold. That was the most since 2008 and represented a 16.4 percent increase from 2012.

The median price of a new home last month rose 4.6 percent from December 2012. For the year as a whole, prices were up 8.4 percent, the most since 2005, with the median new home price climbing to $265,800, the highest on record.

Reporting by Lucia Mutikani; Editing by Paul Simao

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