Pace of new-home sales falls 14.5%

Sales of new homes — such as this one under construction in Zelienople, Pa. — fell 14.5 percent last month, the Commerce Department said Wednesday.
Sales of new homes — such as this one under construction in Zelienople, Pa. — fell 14.5 percent last month, the Commerce Department said Wednesday.

WASHINGTON - The number of Americans buying new homes dropped in March to the slowest pace in eight months.

The Commerce Department said Wednesday that sales of new homes fell 14.5 percent last month to a seasonally adjusted annual rate of 384,000. That was the second straight monthly decline and the lowest rate since July.

“It’s the reduction in affordability, the lack of inventory, also weak growth in median household income - all these are contributing to the sluggish recovery in housing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pa., who forecast sales would drop in March. “It’s going to raise concerns about the strength of the housing recovery, but it’s too early to be too worried.”

Sales plunged in the Midwest, South and West in March. But they rebounded in the Northeast, where snowstorms in previous months curtailed purchases.

New-home sales have declined 13.3 percent in the past 12 months.

“Our core view is that the housing market has stalled and won’t contribute” to overall economic growth this year, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Rising home prices have caused some buyers to back off at the lower end of the market, while new-home buyers at the top continue to buy. As a result, median sales prices jumped 12.6 percent during the past month to $290,000.

“Prices are rising, mortgage rates are higher, and that makes it considerably more expensive to buy than it was a year ago,” said Jed Kolko, chief economist for Trulia Inc., a San Francisco-based online real estate information service. “Affordability is definitely a concern.”

Home sales usually improve with the start of the spring, when more would-be buyers venture to open houses. Families with children often begin to look for homes so that they can move once the school year ends.

Builders anticipated a snap back with the warmer weather. There were 193,000 new homes for sale at the end of the month, about 39,000 more than the same period last month.

Several other indicators also show that housing activity was muted last month.

The National Association of Realtors said Tuesday that sales of previously owned homes edged down 0.2 percent to a seasonally adjusted annual rate of 4.59 million. It was the seventh drop in the past eight months.

Sales have fallen, in part, because few homes are for sale. There is a 5.2-month supply of previously owned homes on the market, below the six month level seen in healthier markets. More construction is needed to increase the supply, the Realtors group advised.

But the improvement in building has been slight.

Builders started work on 946,000 homes at a seasonally adjusted annual rate in March, up 2.8 percent from 920,000 in February, the Commerce Department said last week. Those figures include both single-family homes and rental properties. Applications for permits, a gauge of future activity, fell 2.4 percent last month to a seasonally adjusted annual rate of 990,000.

The National Association of Home Builders/Wells Fargo builder sentiment index was at 47 in April. Readings below 50 indicate that more builders view sales conditions as poor rather than good.

Sales have also been modest because of affordability issues.

Rising prices over the past year and higher mortgage rates have made it harder for many Americans to afford a home. Real estate data provider Core-Logic said home prices rose 12.2 percent in the past year. Wage growth last year failed to keep pace with the higher buying costs.

“A rise in interest rates, combined with the rise in home prices, has quickly and surprisingly made a lot of markets unaffordable for home buyers,” said Daren Blomquist, vice president at property-data firm RealtyTrac Inc. in Irvine, Calif.

The average rate on a 30-year mortgage was 4.27 percent last week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 percent. Those increases began after the Federal Reserve signaled that it would begin to pull back from its bond-buying program.

Those Fed bond purchases were designed to keep long term interest rates low to spur more borrowing and increase economic growth. Since December, the Fed has reduced the size of its monthly purchases to $55 billion from $85 billion.

Information for this article was contributed by Josh Boak of The Associated Press and Michelle Jamrisko and Lorraine Woellert of Bloomberg News.

Business, Pages 25 on 04/24/2014

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