Purchases of new homes in the US unexpectedly fell last month, indicating a recovery from the worst housing slump since the Great Depression will be slow to develop.
Purchases dropped 11 per cent to an annual pace of 355,000, lower than the lowest estimate of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. The median sales price decreased 1.9 per cent from November 2008.
The prospect that a government tax incentive would expire, combined with a 10 per cent jobless rate and competition from foreclosed properties may have hurt builders such as Beazer Homes USA Inc. Last month’s decrease signals a sustained housing recovery may be difficult to secure without additional assistance from policy makers.
“The tax credit put a Band-Aid over the housing problem and in October and November we ripped it off” as it was set to expire, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected sales would fall. “Demand for housing is not likely to pick up on a consistent basis until we start to see some improvement in employment.”
Stocks dropped following the report, erasing earlier gains. The Standard & Poor’s 500 Index was little changed at 1,116.97 at 10:25 am in New York.
The S&P Homebuilder Supercomposite was down 0.2 per cent.
Sales were projected to climb to a 438,000 annual pace from an originally reported 430,000 rate in October, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 400,000 to 460,000.
Consumer spending increased in November less than anticipated as Americans cut back on services after buying more autos and electronics, others figures from the Commerce Department also showed. The 0.5 per cent increase in purchases was the sixth gain in the past seven months and followed a 0.6 per cent increase in October.
The report also showed incomes climbed 0.4 percent, the biggest increase since May, and inflation cooled.
Fewer job losses and discounts may be brightening consumers’ moods. A measure of household confidence increased in December for the first time in three months, another report showed. The Reuters/University of Michigan final index of consumer sentiment climbed to 72.5, less than anticipated, from 67.4 in November. The figure was lower than the preliminary 73.4 reading, reported on December 11.
The report from the Commerce Department showed the median price of a new home in the U.S. decreased to $217,400, from $221,600 a year earlier.
Sales of new homes were down 9 per cent from November 2008.
Construction cutbacks helped bring inventories down. The number of homes for sale fell to a seasonally adjusted 235,000, the fewest since April 1971. The supply of homes at the current sales rate increased to 7.9 months’ worth.
New home purchases, while accounting for less than 10 per cent of the housing market, are considered a timely indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.
Sales of existing homes in November rose 7.4 per cent to a 6.54 million annual rate, the highest level in almost three years, the National Association of Realtors said yesterday. Foreclosures accounted for 33 per cent of all sales, while 51 per cent were to first-time buyers, NAR said.
Sales dropped in three of four regions last month, led by a 21 per cent plunge in the South that took purchases in that area down to the lowest level since 1991. The Midwest showed the only increase, gaining 21 per cent.
President Barack Obama and Congress extended an $8,000 first-time buyer credit and expanded it to include current homeowners in a bid to boost demand. Still, the measure may have pulled sales forward and could result in fewer purchases in coming months.
The Federal Reserve last week signaled it would keep lending rates low for “an extended period” to foster growth. The average rate on a 30-year fixed mortgage was 4.94 per cent last week and has averaged 4.85 per cent since the end of October, according to Freddie Mac.
“The housing sector has shown some signs of improvement over recent months,” Fed policy makers said in their statement. “Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.”
Record foreclosures are also restraining housing by driving down prices. Foreclosure filings in the US will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc said on December 10. This year’s filings will surpass 3.2 million for all of 2008, the Irvine, California-based company said.
Homebuiilders remain cautious. Atlanta-based Beazer last month said orders rose 2.4 per cent in the fourth quarter, and early debt repayment contributed to its first quarterly profit in three years.
“We experienced some moderation in negative market trends,” Chief Executive Officer Ian McCarthy said in a statement. “Elevated unemployment and rising foreclosure activity make it difficult to predict when and to what extent the housing market will sustainably recover.”
