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US New Home Sales Decline Further in July

H.S. Borji
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US New Home Sales Decline Further in July

The sale of new US homes declined unexpectedly in July, tempering expectations about a broad rebound in the housing sector at the start of the third quarter.

New US home sales declined 2.4 percent to a seasonally adjusted annual rate of 412,000, the Commerce Department reported today in Washington. That follows a revised drop of 7 percent in June. A median estimate of economists called for a gain to 430,000.

Compared to July 2013, new home sales were up 12.3 percent.

The median sale price of a new home in July was $269,800, while the average sales price was $339,100. On a seasonally adjusted basis, there were 205,000 new homes for sale at the end of July. At the current sales rate, this represents a supply of 6 months.

New home sales plunged 30.8 percent in the Northeast, 15.2 percent in the West and 8.8 percent in the Midwest. New home sales rose 8.1 percent in the South, official data showed. Compared to year-ago levels, new home sales were down in every region except the South.

Today’s figures conflict with previous reports on housing starts, existing home sales and homebuilder confidence, which suggested the housing market was regaining momentum at the start of the third quarter.

Earlier this month the Commerce Department said housing starts surged 15.7 percent in July to a seasonally adjusted annual pace of 970,000, the highest level since November. Building permits rose 8.1 percent to a 1.052 million pace.

In a separate report the National Association of Realtors said existing home sales rose 2.4 percent in July to the highest level this year.

Meanwhile, US homebuilder confidence in August rose to a seven-month high, as a stronger labour market continued to boost sales conditions. The housing market index, courtesy of the National Association of Home Builders, rose two points to 55.

The NAR will release data on pending home sales later this week. Contracts to buy existing single-family homes is forecast to increase 0.6 percent in July, following a decline of 1.1 percent the previous month.

Declining affordability is expected to further strain home buying in the coming years, as households struggle with weak earnings growth, rising mortgage rates and higher property costs.

Average earnings for US workers are growing at an annual rate of around 2 percent, well below the long-run average. Wage data suggest the labour market has a long way to go before it reaches full recovery.

Janet Yellen confirmed as much last week when she made her first Jackson Hole speech as Chair of the Federal Reserve. According to Yellen, the decline in the unemployment rate since 2009 “somewhat overstates the improvement in overall labour market conditions.”

The unemployment rate has declined nearly 4 percentage points since the height of the Great Recession.

The Fed kept borrowing costs at a record low of 0.25 percent at the July 29-30 policy meetings. Interest rates are expected to remain near-zero until the middle of next year, but a faster economic recovery has warranted consideration for an earlier rate hike.

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