August new-home sales up 7.9% after July drop

WASHINGTON - Americans stepped up purchases of new homes in August after cutting back in July, the Commerce Department said Wednesday.

Sales of new homes increased 7.9 percent last month to a seasonally adjusted annual rate of 421,000. That comes after sales plunged 14.1 percent in July to a 390,000 annual rate.

The rebound in sales could ease worries that higher mortgage rates have started to dampen sales. It coincided with the best month of sales for previously owned homes in more than six years. And homebuilders remain more confident in the market than they’ve been in eight years.

“The jump in mortgage costs is a significant factor in home purchase decisions, so the housing recovery will abate to some degree,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. At the same time, “inventories are still tight. There is still room on the supply side for builders to continue building more homes.”

Lennar Corp., the third-largest U.S. homebuilder by revenue, said its fiscal third-quarter earnings rose as the company sold more houses and raised prices.

The median price of a new home sold in August fell 0.7 percent from July to$254,600.

The housing recovery “is still very much intact,” said Stuart Miller, chief executive officer of the Miami-based builder.

“We’ve experienced a slowdown in our sales pace and traffic in our community, as the consumer has adjusted to the change in the interest rate environment,” Miller said Tuesday during a conference call with analysts. “But it is our belief that this change is mild and temporary given the extremely low levels of housing inventory in the market.”

Some buyers may be racing to close deals before rates rise further. The average rate on the 30-year fixed mortgage has risen more than a full percentage point since May.

New-home sales were 12.6 percent higher in August than a year ago, although the pace remains well below the 700,000 consistent with a healthy market.

The number of new homes available for sale rose 3.6 percent from July to 175,000. That’s still lean - at the August sales pace it would take five months to exhaust the supply.

Sales rose in all but one region in August, increasing 19.6 percent in the Midwest, 15.3 percent in the South and 8.8 percent in the Northeast. Sales plunged 14.6 percent in the West, the second-straight month of double-digit declines.

The housing market has been one of the strongest performers this year in a sluggish economy, helped by steady job gains, low mortgage rates and a limited supply of homes for sale.

Sales of previously owned homes rose in August to a seasonally adjusted 5.5 million annual pace, the National Association of Realtors reported last week. That’s a healthy level and the highest in more than six years.

The Realtors’ group cautioned that the August pace could represent a temporary peak. The gain reflected closings and largely occurred because many buyers rushed to lock in mortgage rates in June and July before they increased further. The Realtors said buyer traffic dropped off noticeably in August, likely reflecting the higher rates.

Many economists say the housing recovery should withstand the mortgage interest rate increase. Mortgage rates are still low by historical standards. The average rate on a 30-year fixed mortgage was 4.5 percent last week.

Though new homes represent only a fraction of the housing market, they have an outsize effect 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 National Association of Home Builders.

Information for this article was contributed by Martin Crutsinger of The Associated Press; by Shobhana Chandra of Bloomberg News; and by Ruth Mantell of MarketWatch.