Sales of New US Homes Highest in 5 Years

WASHINGTON (Market Watch/MCT) -

Sales of new homes in the U.S. surged in June to reach the highest level in more than five years, a sign that a spike in interest rates may have done little to deter buyers.

Sales of new homes last month rose to a seasonally adjusted annual rate of 497,000, a level of demand last seen in May 2008, the Census Bureau said Wednesday. Economists polled by MarketWatch had forecast sales to rise to an annual rate of 483,000.

Yet sales in May were revised down to a 459,000 annual rate from an initially reported 476,000, based on more complete information. And sales for April and March were also marked slightly lower.

New-home sales are 38 percent higher compared to one year ago, reflecting an ongoing recovery in the real-estate market after sales fell to a modern record low in 2011. Ultra-low interest rates, a pickup in hiring and a gradually improving economy have all helped to drive demand.

Even a spike in mortgage costs since late spring – interest rates have jumped nearly a full percentage point – doesn’t appear to have stanched the flow of would-be buyers. It’s possible some buyers moved up their purchases to lock in attractive rates before they rose, analysts say.

In any case, economists point out that interest rates remain extremely low by historical standards: less than 4.5 percent for a 30-year fixed mortgage, compared to 6 percent-plus over the past half-century.

Still, there’s a chance that sales could fall in the next few months. Some buyers may wait to see if rates fall again, analysts say, and higher mortgage costs could price some buyers out of the market.

Another potential obstacle is a dearth of new homes on the market. The supply of new homes available in the U.S. fell to 3.9 months’ worth, at the current sales pace, from 4.2 months’ worth in May, matching the lowest level of the year.

“Perhaps sales will flatten out for a while, but I doubt that home sales are poised for a sharp drop-off,” said Stephen Stanley, chief economist of Pierpont Securities.

Builders, for their part, do not seem worried about the rise in rates. An index of home-builder sentiment rose in July to its highest level since the end of 2005.

The industry’s renewed confidence is evident in the rising number of home-building permits and new construction, though it could take a while before the supply of new homes reaches pre-recession levels.

For all the recent progress, the industry still has a long way to go until sales return to a level considered normal. Before a market bubble popped in 2006, new-home sales reached as high as 1.28 million annually. Sales could accelerate above the 1 million mark again if the economy returns to historic growth patterns, economists estimate.

In June, demand was strongest in the Northeast, where sales climbed 18.5 percent. Sales were also brisk in the South and West, falling only in the Midwest.

The median price of new homes was up 7.4 percent, to $249,700, from a year earlier, as prices clung near multi-year highs.