WASHINGTON (Bloomberg) — Demand for new homes unexpectedly dropped in June from a two-year high, indicating the housing recovery will be uneven.
to a 350,000 annual
rate, down 8.4 percent
from the prior month and the weakest since January, the Commerce Department reported Wednesday in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000. The decline was led by a record 60 percent plunge in the Northeast.
A supply crunch and sluggish progress in the job market may be depressing home purchases even as prices and mortgage rates remain attractive. Federal Reserve Chairman Ben Bernanke is among those who say the housing market is showing a “modest” recovery as buyers still face obstacles.
“A dearth of construction has led to a very significant inventory shortage,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities in New York, who forecast sales would drop to a 345,000 rate, the lowest in the Bloomberg survey. “If you want to buy a newly built home, good luck finding one.”
Bloomberg survey estimates for new-home sales, which are counted when contracts are signed, ranged from 345,000 to 380,000. The May reading was revised up to a 382,000 pace from the previously estimated 369,000, while April and March were also revised up.
The median sales price decreased
3.2 percent from the same month last year,
to $232,600, today’s report showed.
Purchases decreased in two of four regions last month. In addition to the record drop in the Northeast, purchases fell 8.6 percent in the South. Demand climbed in the Midwest and West.
The number of newly constructed houses on the market was little changed at 144,000 from a record low of 143,000 reached in May. The record high of 572,000 was reached in July 2006. The supply of new houses on the market at the current sales pace increased to 4.9 months, from an almost seven-year low of 4.5 months in May.
“The homebuilding sector has been shut down for about five years, so there’s no inventory to buy,” said Riccadonna. “If we want to take the temperature of the housing market, probably the worst series to look at is new home sales.
Builders broke ground on 760,000 houses last month at an annual pace, up 6.9 percent from May and the fastest rate in almost four years, the Commerce Department reported last week.
The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, another report last week showed.
For companies like Sherwin-Williams Co., gains in housing translate to more sales as home buyers decorate their new properties.
“Housing sales are picking back up and housing volumes are improving, those are all really positive market metrics to sustain growth in this business,” Christopher Connor, chairman and chief executive officer of the Cleveland-based paint manufacturer, said on a July 19 earnings call.
Builder shares have outperformed the wider market this year. The Standard & Poor’s Supercomposite Homebuilder Index has climbed 46 percent this year through Tuesday, compared with a 6.4 percent gain for the broader S&P 500.
Residential construction hasn’t contributed to economic growth over the course of an entire year since 2005, when it accounted for 0.4 percentage point of the 3.1 percent increase in gross domestic product. From 2006 through 2009, the homebuilding slump subtracted 0.8 percent point from growth on average. The declines diminished over the past two years.
Newly constructed houses made up 6.7 percent of the residential market last year, down from a high of 15 percent during the boom of the past decade.
Sales of existing homes unexpectedly declined in June to an eight-month low, the National Association of Realtors reported last week, as banks maintained stricter lending standards and cheaper distressed properties remained competitive.
More purchases of higher-priced properties helped drive up the median price of a previously owned house by 7.9 percent from the same time last year, the biggest 12-month gain since February 2006.
Sustained lows for mortgage rates may hold up the market. The average rate on a 30-year fixed loan dropped to 3.53 percent last week, the lowest in data going back to 1972, according to Freddie Mac.
Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as some buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards, Bernanke told the Senate Banking Committee last week.
— With assistance from Chris Middleton in Washington.