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US housing sector mired in weakness despite sales rebound
SALES of new US single-family homes rebounded sharply in June, but sales for the prior three months were revised down, indicating that the housing market continued to tread water despite lower mortgage rates and a strong labour market.
Weak housing and manufacturing are offsetting strong consumer spending, holding back the economy and posing a threat to the longest expansion in history.
Worries about slowing growth, especially tied to trade tensions between the United States and China, and weakness overseas are likely to encourage the US Federal Reserve to cut interest rates next Wednesday for the first time in a decade.
The Commerce Department said that new home sales rebounded 7 per cent to a seasonally adjusted annual rate of 646,000 units last month. May's sales pace was revised down to 604,000 units from the previously reported 626,000 units.
Data for March and April was also revised down. Economists polled by Reuters had forecast new home sales, which account for about 11 per cent of housing market sales, increasing 6 per cent to a pace of 660,000 units in June.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales increased 4.5 per cent from a year ago.
"There is no evidence here to change the narrative that the response of the housing market to lower mortgage rates has been underwhelming," said John Ryding, chief economist at RDQ Economics in New York. "The best description of home sales is that they have levelled out in the neighbourhood of 620,000."
The 30-year fixed mortgage rate has dropped to an average of 3.81 per cent from a more than seven-year peak of 4.94 per cent in November, according to data from mortgage finance agency Freddie Mac.
New home sales in the south, which accounts for the bulk of transactions, rose 0.3 per cent in June to a 13-month high.
Sales in the midwest dropped 26.3 per cent to their lowest level since September 2015. Sales in the west rebounded 50.4 per cent, the biggest gain since August 2010, more than recouping May's 38.5 per cent plunge.
In the north-east, sales dropped for the second straight month, hitting their lowest level in eight months.
While cheaper mortgage rates and the lowest unemployment rate in nearly 50 years are supporting demand for housing, expensive materials and land and labour shortages are constraining builders' ability to produce sought after lower-priced homes.
The median new house price was unchanged at US$310,400 in June from a year ago. There were 338,000 new homes on the market last month, up 0.6 per cent from May.
"Half of today's buyers are looking for homes under US$288,000," said Robert Frick, corporate economist at Navy Federal Credit Union in Virginia. "The building industry is constrained by a lack of labour and lots zoned for building, so they tend to devote their resources to higher-margin houses."
The housing market hit a soft patch last year and has since struggled to gain traction, with residential investment contracting for five straight quarters.
A report on Tuesday showed that home resales tumbled in June as tight supply pushed previously owned house prices to a record high.
While single-family homebuilding rebounded in June, permits increased moderately and continued to lag housing starts.
June's largely weak housing data left economists anticipating that residential investment contracted again in the second quarter, contributing to an expected slowdown in economic growth last quarter.
According to a Reuters survey of economists, gross domestic product likely increased at a 1.8 per cent annualised rate in the April-June quarter, moderating from the first quarter's brisk 3.1 per cent pace. REUTERS