New home sales recorded their biggest drop in more than a year in June and prices resumed their downward trend, dealing a setback for the budding housing market recovery.
Single family home sales tumbled 8.4 percent to a seasonally adjusted 350,000-unit annual rate, the lowest rate in five months, the Commerce Department said on Wednesday.
The percent decline was the largest since February 2011 and much of the drop in sales last month reflected a record 60 percent plunge in the Northeast, which had enjoyed hefty gains since December last year.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
"Housing will continue to recover gradually throughout the year, but fundamentals are not supportive of a fully fledged housing market recovery," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
The drop in new home sales last month came on the heels of a decline in home resales during the same period.
Housing had appeared to be bucking the broad weakness in the economy, marked by a sharp slowdown in job growth and a cooling in manufacturing against the backdrop of fears of tighter U.S. fiscal policy in early 2013 and a lingering debt crisis in Europe.
While sales of both new and previously owned homes fell last month, other parts of the housing markets exhibited strength.
New home construction in June hit its highest level since October 2008 and confidence among home builders this month touched its best level in more than five years, reports showed last week. This offers cautious optimism the pullback in sales will be temporary.
"It is hard to believe that the market is turning downward when the home builders' confidence index jumped in July to its highest level in over five years," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
"Either developers are clueless or the data have yet to catch up with reality. I am on the side of the latter."
WEAK DEMAND FOR LOANS
May's sales pace was revised to show 13,000 more units sold than previously reported. New home sales were up 15.1 percent, compared to June last year.
The weak report and disappointing earnings from Apple weighed on the Standard & Poor's 500 index and the Nasdaq composite index. U.S. Treasury yields were trading near record lows, while the dollar fell broadly.
An 8.2 percent unemployment rate and stringent lending conditions remain major challenges for the housing market.
Applications for loans to buy homes fell last week, despite record-low mortgage rates, a separate report from the Mortgage Bankers Association showed.
Caterpillar Inc., the world's largest maker of construction equipment, on Wednesday forecast housing starts this year to exceed 750,000 units, a decline from its previous estimate of 800,000 units.
The median price of a new home fell 3.2 percent from a year ago, after rising strongly in May. The home price decline had appeared to have bottomed, with other measures of home values trending higher in recent months.
The inventory of new homes on the market increased 0.7 percent to 144,000 in June, but remained near record lows. At June's sales pace it would take 4.9 months to clear the houses from the market, up from 4.5 months in May.
New home sales last month were dragged down by the record plunge in the Northeast, which puzzled economists.
"There is no obvious explanation for the drop, but one possibility consistent with patterns in other data is that the unusually early spring boosted sales earlier and as a result the usual spring sales pop has fizzled early," said Chris Low, chief economist at FTN Financial in New York.
Sales in the South fell 8.6 percent. In the West, sales rose 2.1 percent and were up 14.6 percent in the Midwest.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
© 2023 Thomson/Reuters. All rights reserved.