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US New Home Sales Decline Faster than Forecast in June

H.S. Borji
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The sale of new US homes declined at a faster rate than forecast in June, adding further to the view the housing recovery will be slow to materialize this year as restrictive lending conditions and weak earnings growth continue to dampen the market.

New US home sales declined 8.1 percent to a seasonally adjusted annual rate of 406,000, the Commerce Department reported today in Washington. That follows a downwardly revised rate of 442,000 in May.

A median estimate of economists called for a reading of 479,000.

Compared to June 2013, new home sales were down 11.5 percent.

The median sale price of a new home in June was $273,500, while the average sales price was $331,400.

On a seasonally adjusted basis, there were 197,000 new homes for sale at the end of June. At the current sales rate, this represents a supply of 5.8 months, the highest since October 2011.

New home sales plunged 20 percent in the Northeast, official data showed.

Today’s figures paint a mixed picture of the housing recovery. Earlier this week the National Association of Realtors said US existing home sales advanced 2.6 percent in June to an annual rate of 5.04 million, as buyers took advantage of weaker price growth and rising inventory levels. June marked the first time since October previously-owned home sales reached an annual pace of 5 million.

At the same time, builder confidence rose to a six-month high in July, as pent-up demand brought more buyers to the market place. The housing market index, courtesy of the National Association of Home Builders, rose four points to 53.

However, dampening the outlook were housing starts and building permits, which decelerated sharply in June.

Groundbreaking for new homes plunged 9.3 percent in June to a seasonally adjusted annual pace of 893,000, the Commerce Department reported earlier this month. Economists forecast housing starts to rise to a 1.018 million pace.

Single-family housing starts, which represent the largest segment of the market, declined 9 percent to a seasonally adjusted annual pace of 632,000.

Building permits – a gauge of residential building intentions – declined 4.2 percent to a seasonally adjusted annual pace of 963,000, down from the revised 1.05 million unit pace in May. Economists forecast permits to reach 1.04 million.
The housing sector continues to be a weak spot in the economy, one that has concerned the US Federal Reserve. The minutes of the June Federal Open Market Committee policy meetings revealed central bankers were concerned about persistently low residential construction and said restrictive lending practices were keeping demand for homes subdued.

With mortgage rates expected to rise in the coming year, the labour market recovery will be relied upon to boost home sales. However, subdued wage growth for most of the year means more Americans are cash-strapped and unable to enter the market.

The US economy added 288,000 nonfarm payrolls in June, but earnings advanced only 2 percent annually, well below the long-run average of 3.5 percent.
According to Freddie Mac, the average national mortgage rate for a 30-year, fixed-rate mortgage was 4.16 percent in June.

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