Sales of New Homes Little Changed After August Revision

Purchases of new homes were little changed in September after the prior month was revised down, showing an uneven recovery that will limit how much residential real estate contributes to growth.

Sales rose 0.2% to a 467,000 annualized pace from a 466,000 rate in August that was 7.5% weaker than previously estimated, Commerce Department data showed today in Washington. The median forecast of 75 economists surveyed by Bloomberg called for the pace to decelerate to 470,000.

Home sales are struggling to accelerate further as restrictive lending rules and wage gains that barely keep pace with inflation prevent lower-income buyers from stepping into the market. The recent drop in mortgage rates will probably help prop up residential real estate heading into 2015.

"We expected this was going to be a very lengthy recovery for the housing sector and we still have a long way to go," said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla., the second-most accurate new- home sales forecaster over the past two years, according to data compiled by Bloomberg. "The low mortgage rates are very helpful. The job growth is very, very helpful. But we’re still seeing relatively tight mortgage credit and relatively weak growth in average wages."

Stocks fluctuated between gains and losses, buffeted by concerns over the spread of Ebola to New York and earnings results from companies including Amazon.com Inc. and United Parcel Service Inc. The S&P 500 rose less than 0.1% to 1,947 at 10:18 a.m. in New York. It's poised for its best week since 2013.

Last month's sales rate was still the strongest since July 2008. As the August markdown attests, the preliminary figures can be subject to large revisions. The Commerce Department's report said the September reading will show between a 15.5% drop and 15.9% gain with 90% confidence.

Economists' estimates in the Bloomberg survey ranged from 433,000 to 513,000.

The median sales price of a new house dropped 4% from September 2013 to $259,000, today's report showed. That was the first decrease since April and the largest since January 2012.

Regionally, demand improved in the South and Midwest, was little changed in the Northeast and dropped in the West.

The supply of homes at the current sales pace was little changed at 5.3 months in September. There were 207,000 new houses on the market at the end of the month, the most since July 2010.

Declining borrowing costs will help make big-ticket purchases such as homes more affordable. The average rate on a 30-year, fixed mortgage fell to 3.92% in the week ended Oct. 23, the lowest since June 2013, according to Freddie Mac data. The rate has dropped by 0.27 percentage point over the past three weeks as concern over slowing global growth pushed investors out of stocks and into the safety of Treasury securities, causing yields to drop on the benchmarks used to calculate home-lending costs.

New-home sales, which account for about 7% of the residential market, are tabulated when contracts are signed, making them a timelier barometer than existing homes.

Purchases of previously owned homes, which are counted when a contract closes, climbed in September to the highest level in a year, National Association of Realtors data showed earlier this week. The 2.4% gain pushed sales to a 5.17 million annualized rate.

At the same time, the existing-home sales figures showed that participation among first-time buyers is still languishing. Those consumers made up 29% of the market for a third month in September, below the historical average around 40%.

Builders are staying busy by focusing on rental housing. Work began on more homes in September with a gain in multifamily projects such as apartment buildings outpacing single-family properties, Commerce Department data showed last week. Permits to build also rose.

"The housing market has entered a period of more modest growth than we experienced in 2012 and 2013," Larry Seay, chief financial officer at Meritage Homes Corp., a Scottsville, Ariz.-based builder, said at an Oct. 1 finance conference. "But we believe it is still in the early innings of recovery and has a potential to grow for many years."

While household formation has been "running well below normal levels," the U.S. population has grown and employment is picking up, he said.

"More people than ever, with more jobs than ever, represents a tremendous amount of potential demand for new housing since vacancy rates are very low today," Seay said.

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