New home sales drop in US

LORRAINE WOELLERT
Last updated 12:55 28/01/2014

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Sales of new US homes dropped more than forecast in December as cold weather helped put a chill on an industry at the end of its best year since 2008.

Purchases decreased 7 per cent to a 414,000 annualised pace, lower than any estimate of economists surveyed by Bloomberg, Commerce Department figures showed on Monday (local time) in Washington. For all of 2013, demand jumped 16.4 per cent to 428,000.

The coldest December in four years discouraged sales at the same time affordability weakened as prices and interest rates climbed. While the weather has worsened this month, builders such as KB Home have been optimistic about the outlook for the residential market, which will need to expand to meet the needs of a growing population.

"I wouldn't panic, but it's obviously not a good report," said Michael Hanson, a senior US economist at Bank of America Corporation in New York, the best forecaster of new-home sales over the past two years, according to data compiled by Bloomberg. "I don't feel like this is the beginning of the end of the housing recovery by any stretch."

The slackening shows the challenges faced by Federal Reserve officials as they trim stimulus aimed at boosting the expansion. Policymakers, who begin a two-day meeting Tuesday, have said they'll take measured steps in reducing monthly bond purchases.

Borrowing costs for prospective buyers have climbed since US central bankers last year signalled they would pare purchases of mortgage-backed securities and other bonds, a process that began this month. The Fed probably will stick to its plan to gradually reduce asset purchases, tapering by US$10 billion (NZ$12.13bn) over the next six meetings before announcing an end to the programme no later than December, according to a Bloomberg survey of economists.

"We know they are concerned about interest-rate sensitive indicators of the economy," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "Now that they have started, the problem is how do they explain tapering the original US$85 billion to US$75 or US$65 billion is not really tightening?"

The median forecast of 75 economists surveyed by Bloomberg called for 455,000 new-home sales last month. Estimates ranged from 420,000 to 475,000. October and November purchases were weaker than initially reported.

Inclement weather probably dealt a setback to some builders. The extent of snow cover in the contiguous US was the eighth-largest on record for the month, according to the National Oceanic and Atmospheric Administration. It also marked the coldest December since 2009, the agency said.

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Such conditions weighed on construction as well. Housing starts fell 9.8 per cent last month to an annualised rate of 999,000 following November's 1.11 million pace, which was the highest since November 2007, the Commerce Department said earlier this month. Work on single-family houses dropped 7 per cent to a 667,000 rate from 717,000 the prior month.

Monday's report showed the median sales price of a new home rose 4.6 per cent from December 2012 to US$270,200. Higher prices, along with borrowing costs, have made purchases more difficult for some buyers. The average rate for a 30-year fixed mortgage was 4.39 per cent last week, up from 3.35 per cent in early May, according to data from Freddie Mac in McLean, Va.

New-home sales, which account for about 7 per cent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing properties.

Purchases of previously owned homes climbed in December for the first time in five months, rising 1 per cent to a 4.87 million annual pace, the National Association of Realtors reported January 23. Combined sales of existing and new dwellings increased to 5.52 million in 2013, the strongest year for residential real estate since 2006.

New-housing demand has rebounded from a record-low 306,000 homes sold in 2011. That compares with a record peak of 1.28 million in 2005 at the height of the housing boom.

December purchases dropped in three of four regions, led by a 36.4 per cent plunge in the Northeast, the smallest market. The two largest areas, the South and West, also declined, while the Midwest jumped 17.6 per cent.

The supply of homes at the current sales rate rose to 5 months, the most since September, from 4.7 months in November. There were 171,000 new houses on the market at the end of December, the fewest since July.

Builders see plenty of room for growth this year, said Jeffrey Mezger, chief executive of KB Home in Los Angeles.

"The fundamental drivers of a housing recovery remain in place, although conditions are not as favourable as they were six months ago," Mezger said on a December 19 earnings call. While borrowing costs and home prices have increased, "affordability is at attractive levels, demographics remain strong and there's pent-up demand".

While higher borrowing costs and prices are keeping some people out of the market, that pause should be short-lived, Mezger said.

"In the meantime, we feel that less upward pressure on home prices is healthy for a measured, sustainable housing recovery," he said.

- WP Bloom

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