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New-Home Sales Plunge As Mortgage Rates Rise

Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may weigh on the housing recovery.

For sale sign
(Facebook)

The Commerce Department said Friday that new-home sales dropped 13.4 percent to a seasonally adjusted annual rate of 394,000. That’s the lowest pace in nine months. And it is down from an annual rate of 455,000 in June, which was revised sharply lower from a previously reported rate of 497,000.

New-home sales have risen 7 percent in the 12 months ending in July. The annual pace remains well below the 700,000 that is consistent with a healthy market.

The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains and low mortgage rates. But mortgage rates have risen a full percentage point since May and have started to steal some of the market’s momentum.

In July, builders began work on the fewest single-family homes in eight months. And mortgage applications from potential buyers have fallen since rates have risen more than a full percentage point.

The impact of higher mortgage rates has surfaced in the new-home market faster because the July sales report reflects signed contracts. Sales of previously occupied homes reached at nearly four-year high last month. But that report measured completed sales, which typically reflects mortgage rates locked in a month or two earlier..

Most economists expect the housing recovery will persist. Mortgage rates remain relatively low by historical standards. The average rate on a 30-year mortgage this week was 4.58 percent, according to Freddie Mac.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.

New-home sales have risen while the supply of homes on the market has stayed lean. That has pushed up prices and made builders more confident. A measure of builder confidence rose to nearly an eight-year high in August.

(Copyright 2013 The Associated Press. All Rights Reserved)

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