Following Wednesday's upbeat report from the National Association of Realtors on sales of existing homes in July, expectations had been that the much more volatile new home sales series would show a small decline. However, within the past hour, the Commerce Department reported that sales of new residences, instead of edging back down slightly, plunged 13.4% from June's revised annual rate of closings.
Specifically, new home sales fell to an annualized rate of 394,000 units last month, the lowest sales level in nine months. Consensus forecasts had suggested that sales would come in at 490,000 homes, down from an initially estimated June rate of 497,000 homes. The latest sales pace, meanwhile, represented the steepest setback in three years. Worse, the report also showed that June sales were lower than previously reported, coming in at 455,000 homes from the aforementioned initially estimated total of 497,000 residences.
The sharp falloff in new home sales comes against a backdrop of sharply higher mortgage rates. To wit, the average weekly rate for a 30-year fixed-rate mortgage is up to a two-year high of 4.58%, according to Freddie Mac. That puts this economically and politically sensitive rate some 127 basis points above the all-time low of 3.31% reached in November of 2012. Since then, the 30-year fixed rate has been bouncing around, easing back down to a 3.35% rate just this past May. But since that time, rates have been soaring, with the benchmark 10-year Treasury note jumping to a yield of just over 2.90% this morning.
Still, our sense is that it is too early to definitively say just how much the higher rates are affecting the housing industry. But the latest sharp falloff in new home sales is certainly an eye opener. As noted, sales of existing homes did tick up 6.5% in July, to its highest level in nearly four years. So, it is too early to make any judgments about overall conditions in this core market. But the short-term trends certainly bear watching in light of this morning's sudden drop in sales.
Also of note in this latest report was the fact that housing inventories rose, which is a worrisome trend, with the median supply of unsold home increasing from 4.3 months in June to 5.2 months in July. Further, the price of a new home edged a bit lower, falling by 0.5% to $257,200. Still, it should be noted, that inventories remain below the historical average of about six months, so there is little to worry about here as yet. And even with this sharp sales setback, the rate of sales was still up 6.8% from a year earlier.
In sum, this was a disturbing report, but it probably is too early to affirm that a new, lower, trend is securely in place. We will need to see confirming data over the next couple of months to make a definitive judgment on that count.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.