Purchases of new homes fell in February to the lowest level in five months, a sign the industry may take time to pick up after inclement weather damped demand earlier in the year.
Sales declined 3.3% to a 440,000 annualized pace, following a 455,000 rate in the prior month that was the strongest in a year, figures from the Commerce Department showed today in Washington.
Unusually frigid temperatures added to restraints including rising mortgage rates, higher property values, and a lack of supply that kept prospective buyers away from the market for new and existing properties. Bigger gains in employment and consumer sentiment would help spur the recovery in homebuilding, sustaining its contribution to economic growth and boosting earnings at companies such as Lennar Corp. and KB Home.
"There’s a big upside to new-home sales," said Robert Dye, chief economist at Comerica Inc. in Dallas, who correctly projected the drop in sales last month. "We have a huge amount of pent-up demand and very tight inventories. Mortgage rates, although they’ve risen, are still very low. We expect to see continuing improvement in the housing market."
Economists' estimates ranged from 406,000 to 506,000. The reading for the prior month was revised down from a previously reported 468,000.
Another report today showed prices of home resales climbed at a slower pace in the year through January than a month earlier, indicating momentum in property-value appreciation is cooling.
The S&P/Case-Shiller index of 20 cities increased 13.2% from January 2013, the smallest gain since August, after rising 13.4% in the 12 months through December. Compared with the prior month, prices rose 0.8%.
Also today, another report showed consumer confidence unexpectedly jumped in March to the highest level in six years. The Conference Board's sentiment index rose to 82.3 in March, the highest since January 2008, from 78.3 a month earlier, the New York-based private research group said.
The median sales price of a new house decreased 1.2% from February 2013, to reach $261,800, according to today’s Commerce Department report. It was the biggest year-to-year decline since June 2012. The median can be affected by the mix of sales by region as prices are generally higher in the Northeast and West where demand declined.
Purchases dropped in three of the four regions, led by a 32.4% slump in the Northeast. The West decreased 15.9% and the South fell 1.5%. Demand in the Midwest jumped 36.7% to the highest level since May 2013, after dropping almost 20% the prior month.
The supply of homes at the current sales rate climbed to 5.2 months from 5 months in the prior month. There were 189,000 new houses on the market at the end of February, the most since December 2010.
New-home sales, which accounted for about 8% of the residential market in 2013, are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. Sales of existing homes are tabulated when a deal closes, typically a month or two later.
The weather depressed parts of the housing market, recent reports showed. Sales of previously owned properties declined in February to the lowest level since July 2012, according to data from the National Association of Realtors. The National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March.
Warmer temperatures may revive construction and help bring more buyers out in coming months.
The recent weakness is 'a temporary pause,' and the homebuilding industry is still in the early stages of recovery, Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said in a statement on March 5.
Lennar, the biggest U.S. homebuilder by market value, last week reported a fiscal first-quarter profit that beat analysts' estimates as it sold more homes at higher prices.
"The housing-market recovery continues as we begin to enter the more vibrant seasonal months of the year," Chief Executive Officer Stuart Miller said on a March 20 conference call with analysts. "The fundamental drivers of improvement in the housing market remain a steadily improving economy with a slowly improving employment picture unlocking pent-up demand, while supplies remain constrained to meet that demand."
Los Angeles-based KB Home also reported fiscal first-quarter earnings that beat estimates as it raised prices and opened communities in high-cost, land-constrained markets, such as parts of California.
Rising borrowing costs have limited affordability. The average 30-year, fixed-rate mortgage rate was 4.32% in the week ended March 20, up from 3.54% a year earlier, according to Freddie Mac.
Federal Reserve policy makers last week gave themselves room to keep borrowing costs low at least until next year by dropping a link between the benchmark interest rate and a specific level of unemployment. The central bank also reduced the monthly pace of bond purchases by $10 billion, to $55 billion.
Household formation would ultimately generate new construction, Fed Chair Janet Yellen said during a news conference after the policy meeting.