Sales of newly built homes slipped in April from the strongest pace in almost a decade, following unexpected declines in housing starts and building permits, suggesting that the increase in mortgage rates may be beginning to affect the housing market and that tomorrow's existing home sales could be a disappointment.
Purchases of homes that have never been occupied fell 11.4 percent, the largest monthly drop in two years, to an annualized rate of 569,000. March's sales were revised up to 642,000 from 621,000.The median estimate in the Reuters survey had called for a decline to 610,00o.
Building permits and housing starts, indicators of future demand for housing, fell respectively 2.5 percent and 2.6 percent, in April, both had been forecast to rise.
The recovery in housing starts from their post-recession low of 428,000 in April 2009 peaked this past October at 1.328 million. The April rate of 1.172 million is 11.7 percent below that. The recovery in permits topped out in June 2015 at 1.343 million. April's 1.229 million is 8.5 percent beneath.
New home sales are just 10 percent of the U.S. residential market. Purchases in the far greater existing home sector will be reported on Wednesday by the National Association of Realtors. Sales are expected to fall 1.1 percent to an annual rate of 5.65 million from the more than 10 year high of 5.71 million in March.
Home sales have staged a sharp increase in the past year and a half after plunging to 4.83 million in November 2015, a drop of 10.5 percent in two months.
Mortgage rates have taken a rapid turn higher in past seven months from a nationwide average of 3.47 percent for a 30-year fixed rate mortgage on October 27th to 4.02 percent on May 18th. They had been as high as 4.32 percent in late December and 4.30 percent in mid-March. The average rate this year has been the highest in three years.
Despite the relatively strong job market, 211,000 new positions were created in April for an average of 184,500 this year, compensation has been stagnant since the recession. Non-farm payrolls averaged a virtually identical 187,000in 2016, but under-employment and a very low labor force participation rate are keeping a lid on wages. Annual increases in average hourly earnings and personal income over the past eight years have been just marginally ahead of inflation. The lack of predictable wage increases may make the marginal and first time home buyer more susceptible to increases in mortgage rates.
New home purchases fell in all four regions of the country led by a 26.3 percent decline in West.
New home sales are counted when a purchase contract is signed; existing home sales are recorded when at closing, when the property changes ownership.
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