U.S. new home sales fall; low mortgage rate still underpinning demand

In this news, we discuss the U.S. new home sales fall; low mortgage rate still underpinning demand.

WASHINGTON (Reuters) – Sales of new single-family homes in the United States fell unexpectedly in September after four consecutive monthly increases, but the housing market remains supported by record mortgage rates and demand for more space as the COVID-19 pandemic continues.

The drop in sales reported by the Commerce Department on Monday follows data from last week showing the construction of single-family homes and pushes levels last seen in 2007 in September. Homebuilder confidence hit an all-time high in October, while sales of previously owned homes hit their highest level in more than 14 years in September.

“While there may be ups and downs along the way, we are still looking for strength in the housing market as low mortgage rates stimulate activity and earlier pent-up housing demand is released,” said said Daniel Silver, economist at JPMorgan in New York.

New home sales fell 3.5% to a seasonally adjusted annual rate of 959,000 units last month. The August sales pace has been revised to 994,000 units from the 1.011 million units previously reported. Economists polled by Reuters had forecast new home sales, which account for about 12.8% of housing market sales, to rise 2.8% to a rate of 1.025 million units.

New home sales jumped 32.1% year over year. New home sales are recorded when a contract is signed, making it a major indicator of the real estate market. The monthly drop in September could, however, signal a slowdown in the dynamics of the real estate market as the fourth quarter approaches.

Home purchase loan applications have fallen for four straight weeks. As homebuilders’ confidence reaches historic highs, shortages of land, labor, lumber and other key building materials are extending construction times.

“New home sales figures this month indicate that the housing market may finally lose momentum,” said John Pataky, executive vice president of TIAA Bank in Jacksonville, Florida.

The PHLX .HGX housing index fell on new housing data and in line with a significantly weaker US stock market, which was dragged down by the surge in new coronavirus cases. The dollar rose against a basket of currencies. US Treasury prices were higher.

SHINING STAR

Although the COVID-19 pandemic has ravaged the economy, it has boosted the housing market as Americans flee city centers to suburbs and low-density areas in search of more office space at home and school. Dizzying unemployment, which left 23.2 million people out of work, has disproportionately affected low-paid workers.

Home sales were concentrated in the single-family segment and in the higher price ranges. First and second home buyers have been active in the market, with bidding wars reported in parts of the country.

The decline in new home sales last month did not change expectations that the housing market likely contributed to a strong recovery in economic activity in the third quarter. Growth estimates for the July-September quarter are at an annualized rate of 35.2%, which would recoup about two-thirds of production lost due to the pandemic.

The economy contracted at a rate of 31.4% in the second quarter, the deepest drop since the government began keeping records in 1947. The government is expected to release its third quarter GDP overview on Thursday.

GDP growth in the third quarter was boosted by government money, which has since run out. That, combined with the resurgence in coronavirus infections, has led to projections of a sharp slowdown in activity in the fourth quarter.

Chart: New home sales

“The housing sector is expected to continue supporting growth for at least the next two quarters as strong demand drives new construction,” said Andrew Hollenhorst, economist at Citigroup in New York.

The 30-year fixed mortgage rate averages 2.80%, according to data from mortgage finance agency Freddie Mac.

In September, sales of new homes fell 28.9% in the Northeast. They fell 4.7% in the South, which accounts for the bulk of transactions, and 4.1% in the Midwest. But sales rose 3.8% in the West.

The median price of new homes rose 3.5% to $ 326,800 in September from a year ago. Sales of new homes last month were concentrated in the $ 200,000 to $ 399,000 price range.

There were 284,000 new homes on the market last month, up from 282,000 in August. At the pace of September sales, it would take 3.6 months to offset the supply of homes on the market, compared to 3.4 months in August. Just over two-thirds of homes sold last month were either under construction or yet to be built.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Original © Thomson Reuters

Originally posted 2020-10-26 22:56:11.

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