Sales of new U.S. homes decrease from two-year high

Sales of new U.S. homes unexpectedly dropped in June from a two-year high, a sign the market is being held back by a lack of inventory after builders curtailed projects.

Purchases fell 8.4% to a 350,000 annual rate, the weakest since January, the Commerce Department reported today (July 25) in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000. The decline was led by a record plunge in the Northeast, where the number of properties available last month was the fewest for any June.

“A dearth of construction has led to a very significant inventory shortage,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, who forecast sales would drop to a 345,000 rate, the lowest of those surveyed. “If you want to buy a newly built home, good luck finding one.”

Record-low mortgage rates and stabilizing home prices have spurred buyer traffic, even as unemployment and strict lending standards remain obstacles for the industry that precipitated the last recession. Among companies betting that construction will pick up is Caterpillar Inc., which today raised its full- year earnings forecast on improving sales of excavators, scrapers and dozers as builders replace aging equipment.

Bloomberg survey estimates for U.S. new-home sales, which are counted when contracts are signed, ranged from 345,000 to 380,000. The May reading was revised up to a 382,000 pace, the highest since April 2010, from the previously estimated 369,000, while April and March were also boosted from prior estimates.

‘CLEARLY BOTTOMED’
“There’s one down month, but I think we’re still in an uptrend,” said Bob Baur, chief global economist at Principal Global Investors in Des Moines, Iowa. “Housing has clearly bottomed.”

Peoria, Ill.-based Caterpillar, the largest maker of construction and mining equipment, is considered an economic bellwether. Sales rose 22% in the second quarter from the same time last year, the company said today.

“We understand the world is facing economic challenges, and if it becomes necessary, we are prepared to act quickly as we did in late 2008 and 2009” during the last recession, Chief Executive Officer Doug Oberhelman said in the statement.

Purchases decreased in two of four U.S. regions last month, today’s Commerce Department report showed. Demand slumped 60% in the Northeast, and fell 8.6% in the South. The Midwest and West registered gains.

The number of newly constructed houses on the market was little changed at 144,000 from a record low of 143,000 reached in May. The record high of 572,000 was reached in July 2006. The supply of new houses on the market at the current sales pace increased to 4.9 months from an almost seven-year low of 4.5 months in May.

REGIONAL SALES
There were 17,000 new houses available for sale in the Northeast in June, according to Commerce Department data that is unadjusted for seasonal variations, the fewest for the month in records going back to 1973.

“The homebuilding sector has been shut down for about five years, so there’s no inventory to buy,” said Riccadonna. “If we want to take the temperature of the housing market, probably the worst series to look at is new home sales.”

Builders broke ground on 760,000 houses last month at an annual pace, up 6.9% from May and the fastest rate in almost four years, the Commerce Department reported last week.

The National Association of Home Builders/Wells Fargo confidence index climbed 6 points, the biggest gain since September 2002, to 35 this month, another report last week showed.

Today’s Commerce Department report showed the median sales price of a new house decreased 3.2% in June from the same month last year to $232,600.

RESIDENTIAL SLUMP
Residential construction hasn’t contributed to economic growth over the course of an entire year since 2005, when it accounted for 0.4 percentage point of the 3.1% increase in gross domestic product. From 2006 through 2009, the homebuilding slump subtracted 0.8% point from growth on average. The declines diminished over the past two years.

Newly constructed houses made up 6.7% of the residential market last year, down from a high of 15% during the boom of the past decade.

Sales of existing homes unexpectedly declined in June to an eight-month low, the National Association of Realtors reported last week, as banks maintained stricter lending standards and cheaper distressed properties remained competitive.

More purchases of higher-priced properties helped drive up the median price of a previously owned house by 7.9% from the same time last year, the biggest 12-month gain since February 2006.

Sustained lows for mortgage rates may hold up the market. The average rate on a 30-year fixed loan dropped to 3.53% last week, the lowest in data going back to 1972, according to Freddie Mac.

Federal Reserve Chairman Ben Bernanke is among those who say the housing market is one area of the economy that is improving as other areas cool.

Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as some buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards, Bernanke told the Senate Banking Committee last week.