Sales of newly built homes tumbled in March while prices surged, in the latest indication that the U.S. housing market is struggling to regain traction.
Sales of new single-family homes dropped 14.5% from February to a seasonally adjusted annual rate of 384,000, the Commerce Department said Wednesday. The sales pace for January and February was revised higher. From a year earlier, new-homes sales were down 13.3%.
March’s figure was the lowest annual pace since last July and was below expectations. Economists surveyed by The Wall Street Journal had forecast sales would reach a 450,000 rate last month.
Harsh winter weather had shuttered construction sites and softened the housing sector and labor market in recent months. Storms in early March could have continued to hit the industry, and the muddy ground since then restrained home-building, said Pierpont Securities chief economist Stephen Stanley.
“As a result, new-home inventories were still unusually light, and shoppers have less to choose from,” Mr. Stanley said. “But, as far as I can tell, builders are still intent on getting more new homes on the market ASAP.”
New-home sales, which represent a small share of houses purchased in the U.S., can be subject to large revisions. But the report provides a more timely reading of the housing market than other gauges because it tallies sales at the moment a contract is signed rather than at closing.
But the weak home-sales reading may go beyond weather, several economists said. “It is disappointing that new-home sales have shown little improvement since mid-2013, when mortgage rates moved above 4%,” said Omair Sharif, an economist at RBS Securities.
New-home sales had been trending up for much of 2011 and 2012 but have been more volatile over the past year. Would-be buyers have faced rising mortgage rates, surging house prices and stringent lending standards. Home builders also have complained about rising construction costs, labor shortages and fewer residential lots.
The median price of a new home reached its highest level ever in March at $290,000, the report said, up 11.2% from February. Builders’ attempts to push up prices may have hit a ceiling. The number of houses for sale at the end of March was a seasonally adjusted 193,000. That was the highest figure since November 2010, the Commerce Department said.
The spring buying and selling season is crucial for the U.S. housing market because many families want to settle into a school district by the end of the summer. But recent data suggest a slow start so far this year.
Sales of previously owned homes, which account for more than 90% of total sales, fell slightly in March and were down 7.5% from a year earlier, the National Association of Realtors said Tuesday. NVR, which builds homes under the brands Ryan Homes and others, said its sales contracts signed in the first quarter were down 5.3% from the same period a year earlier.
A measure of home-builder confidence rose slightly in April but remained below 50, according to the National Association of Home Builders. That is the dividing line between generally positive and generally negative comments.
Still, sales could pick up in the months ahead. Builders started construction on more homes for the second straight month in March, a separate Commerce Department report said last week. U.S. housing starts rose 2.8% last month, fueled by single-family home construction.
The Federal Reserve is expected to keep short-term interest rates near zero into 2015. But mortgage rates have risen in the past year, since the central bank signaled it would begin pulling back its easy-money policies. A 30-year fixed-rate mortgage had an average interest rate of 4.4% at the end of March, up one percentage point from last spring, according to Freddie Mac.
Fed officials are expecting the housing market to be a driver this year of economic growth. But if the market continues to plod along, it could weigh on the central bank’s outlook.
“A strong housing rebound is an important component of most forecasts that suggest that GDP growth will be stronger than the economy’s ‘potential’ rate over the next two years,” Eric Rosengren, president of the Boston Fed, said in a speech last week.
The Commerce Department report Wednesday also found home sales plummeted in the Midwest, South and West but rose in the Northeast.
As appeared on WSJ