Pause or Reversal? New-Home Sales Plunge on Higher Rates

Pause or Reversal? New-Home Sales Plunge on Higher RatesBuilders are calling it a “pause” in the housing recovery, but it’s hard to even partially dismiss a plunge of 13.4 percent in newly built, single-family homes in July as reported by HUD and the U.S. Census Bureau on Friday.
July’s seasonally-adjusted annual rate of 394,000 units is fully blamed on climbing fixed mortgage rates — which are higher by more than a full percentage point from the lows set before the Federal Reserve initially signaled that it would taper its stimulus program of bond buying.
While such housing data is often subject to revisions, the figure was well below expectations.
Moreover, it could be the first big sign that higher rates are weighing heavily on the economic recovery.
The National Association of Home Builders said consumers need time to embrace a new range of interest rates before diving into the new-home market.
When it comes to existing homes, higher rates had an opposite affect in July. Total existing-home sales increased 6.5 percent to a seasonally-adjusted annual rate of 5.39 million in July. Much of the increase was attributed to fence-sitters hitting the market out of fear that rates will continue to rise.
Builders see a similar unfolding of events in the new-home market.
“The drop-off in sales in July is in part a reflection of buyers’ reaction to the recent uptick in mortgage rates as people reassess their budgets to determine how much house they can afford,” said Rick Judson, chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C. “Consumers just need a little time to adjust to the new parameters of the market.”
New-home sales figures are based on newly signed contracts to purchase a home, rather than a completed sale, explained NAHB Chief Economist David Crowe.
“And it’s likely that the higher rates caused some buyers to delay putting pen to paper,” Crowe said.
Every region recorded lower new-home sales in July, with declines of 5.7 percent, 12.9 percent, 13.4 percent and 16.1 percent reported for the Northeast, Midwest, South and West, respectively.
Meanwhile, the inventory of new homes for sale edged up to 171,000 units in July, which is a 5.2 month supply at the current sales pace.

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