New Home Sales Flop in July, June and May Sales Revised Lower

Andrew Klips  |

In a sign that rising interest rates may be impacting the U.S. housing market, new home sales sunk more than expected in July to hit a nine-month low according to a report on Friday from the Census Bureau.

The Commerce Department said that sales slumped to an annual rate of 394,000, down sharply from a June’s deeply revised number of 455,000.  It was the largest one-month drop in three years.  The agency originally estimated June’s figure at 497,000, which was the highest level since May 2008.  That’s a 103,000-unit swing, suggesting that interest rates climbing more than a full point since the start of May could be putting potential new homeowners on the sidelines.  May’s figure was also revised down from 476,000 to 439,000.

July’s figure was far below economist expectations of a 486,000 annual rate.

Compared to last July, new home sales are still ahead by 6.8 percent, but sit far below the 700,000 annual pace that economists consider a healthy housing market.

The median sales price of new houses sold in July was $257,200.  The average price was $322,700.  In July 2012, the median price of a new home was $237,400.

The number of houses on the market at the end of the month was 171,000, representing a 5.2-month supply at the current monthly sales rate.  Inventory was up substantially from the 4.3-month supply in June.

The number of houses sold was lower in all four regions of the U.S.

The annualized rate has dropped month-over-month in five of the first seven months of 2012.

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Interest rates starting rising in May in response to expectations that the Federal Reserve is going to begin to taper its stimulus of buying $85 billion monthly in Treasuries and mortgage-backed securities.  The stimulus package is designed to assist in keeping interest rates low.

The latest minutes from the July meeting of the Federal Open Market Committee were released on Wednesday, showing that the majority of officials are supportive of tapering monetary stimulus some time by the end of the year, although no specifics were provided.  The Fed has said that they are basing their decision on the strength of the overall economy, so traders will be mulling how Friday's report may effect their decision.

Some conflicting housing data has come this week with this report differing greatly from a report from the National Association of Realtors on Wednesday discussing existing home sales for July.  In that report, existing home sales rose by 6.5 percent to an annualized rate of 5.39 million units, representing nearly a four-year high.  Some analysts have said that they believe existing home sales spiked in the past few months as buyers looked to close deals before interest rates continued to rise.

On Thursday, the Dow snapped a six-session losing streak by closing ahead, despitea weaker-than-expected report on initial jobless claims.  The major indices are holding modestly in the green again on Friday with the poor report on new home sales.  Perhaps its some buying pressure as traders see a buying opportunity after a steep drop or maybe they’re seeing the soft economic data as a reason to make the Fed pause and not start tapering in September as many economists have predicted will happen.  As the day and week wind down, the Dow is up by 21 points, the S&P 500 is ahead 3 points and the Nasdaq is trading ahead by 13 points.

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