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Drop In New Home Sales May Be Sign Higher Rates Are Biting

Filed by KOSU News in Business.
August 23, 2013

Proving once again that when it comes to economic data there’s almost always a “but” to watch out for:

The housing sector has been one of the economy’s stars in recent months, as we said Thursday when the news broke that sales of existing homes rose an estimated 6.5 percent in July from June.

But …

Sales of new single-family homes fell 13.4 percent in July from June, the Census Bureau and the Department of Housing and Urban Development reported Friday. What’s more, the agencies revised down sharply their estimate of how strong sales of new homes were in June. Instead of running at a 497,000 annual rate, sales are now thought to have been moving along at a 455,000 annual pace as of that month.

The big revision to the June number means sales that month did not hit a 5-year-high, as previously thought. Instead, they came in at the second-highest rate since mid-2008.

MarketWatch writes that “rising mortgage rates may be behind July’s drop, though the monthly data are quite volatile and economists had expected some pull back after sales gains in recent months.”

The good news is that even with the drop from June to July, sales of new homes were still up an estimated 6.8 percent from their pace a year earlier, in July 2012.

It’s also worth noting that the market for new homes is much smaller than the market for existing, or previously owned homes. While new home sales were running at annual rate of nearly 400,000 in July, sales of existing homes were chugging along at a 5.4 million annual rate. So, the positive ripple effects across the economy from rising sales of existing homes should be greater than the negative effects from the drop in new home sales.

But (there’s that word again) as NPR’s Marilyn Geewax and Chris Arnold reported last week on Morning Edition, economic optimists and pessimists both have things to talk about when it comes to housing these days. [Copyright 2013 NPR]

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