Fewer New Homes Sold in October than Economists Forecast
New homes sold at a slower pace than forecast in October as builders focused on meeting demand at the upper end of the market.
Purchases climbed 0.7% to a 458,000 annualized pace from a revised 455,000 rate in September that was lower than initially reported, data from the Commerce Department showed today in Washington. The median forecast of 73 economists surveyed by Bloomberg News called for the pace to accelerate to 471,000. The median price of a home surged to a record.
Strict lending rules and slow wage growth have hampered first-time buyers, prompting builders to cater instead to upper-income customers who are able to get financing or pay cash. Bigger gains in employment and wages would stoke a more-rapid and balanced recovery.
"You're dealing with the aftermath of the crisis," Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York, said before the report. "Builders have been optimistic for quite a while now but they haven’t seen that translate into actual activity."
Other reports today showed consumer spending climbed in October at the same pace as incomes, more Americans than forecast filed for unemployment benefits last week, and demand for capital goods unexpectedly dropped in October for a second month.
Household expenditures increased 0.2% last month after being little changed in September, according to Commerce Department Incomes also rose 0.2%, less than projected, showing households are staying within their means as the holiday-shopping season begins.
Jobless claims increased by 21,000 to 313,000 in the week ended Nov. 22, the highest since early September, from 292,000 in the prior period, indicating the pace of improvement in the labor market has cooled, according to figures from the Labor Department.
Economists' estimates for new-home sales in the Bloomberg survey ranged from 425,000 to 505,000. Sales rates were revised down from July through September.
The median sales price of a new house surged 15.4% in October from a year ago to $305,000, the highest on record, today's Commerce Department report showed.
Purchases rose in two of four U.S. regions, led by a 15.8% gain in the Midwest.
The stock of new homes hasn't kept up with population growth since the recession, giving builders reason for optimism, said Brent Anderson, vice president at Meritage Homes Corp. For every housing unit in the U.S. there are 2.6 jobs, more than double the historical number, Anderson said.
"That suggests there is quite a bit of pent-up demand that has not been satisfied yet," he said at a Nov. 20 conference. The builder, based in Scottsdale, Ariz., has 225 communities in nine states, including California and Texas.
"We think that we're still in the early stages of the recovery," Anderson said. "The underlying drivers of demand, which are population growth, job growth, affordability, household formations are strong arguments for that growth to continue."
New-home sales, which last year accounted for about 5% of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.
Purchases of previously owned houses reached a one-year high in October, selling at a 5.26 million annual pace, the National Association of Realtors reported Nov. 20. It was the fifth consecutive month that the pace of sales topped 5 million.
While the housing recovery has been held back by stringent mortgage underwriting, borrowing costs are near historic lows for those who can obtain credit. The average 30-year, fixed-rate mortgage was 3.99% in the week ended Nov. 20, down from 4.22% a year ago, according to data from Freddie Mac. In November 2012, the rate fell to 3.31%, the lowest since records began in 1971.