U.S. new home sales fall unexpectedly, low mortgage
rates lend support
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[January 28, 2020] By
WASHINGTON (Reuters) - Sales of new U.S.
single-family homes fell unexpectedly in December, likely held down by a
shortage of more affordable homes, but lower mortgage rates supported
the overall housing market.
The U.S. Commerce Department report on Monday also showed downward
revisions to sales for the prior three months, bucking a recent streak
of fairly strong housing data. Strength in housing, following a slump in
2018 through the first half of 2019, could offset some of the drag on
economic growth from weakness in business spending and manufacturing.
New home sales slipped 0.4% last month to a seasonally adjusted annual
rate of 694,000 units, with sales in the South dropping to the lowest in
more than a year. It was the third straight monthly decline in sales.
November's sales pace was revised down to 697,000 units from the
previously reported 719,000. September and October sales were also
"Low mortgage rates, a robust labor market and stabilizing geopolitical
tensions suggest that demand for housing will stick around, and buyers
are hungry for more housing options," said Matthew Speakman, economist
at online real estate firm Zillow.
Sales last month were concentrated in the $200,000-$749,000 price range.
New homes priced below $200,000, the most sought after, accounted for
only 10% of sales.
Economists polled by Reuters had forecast new home sales, which account
for about 11.1 % of housing market sales, would increase 1.5% to a pace
of 730,000 units in December.
The PHLX housing index <.HGX> fell, tracking a broadly weaker U.S. stock
market as investors worried about the economic fallout of the
fast-spreading coronavirus outbreak in China that has prompted the
country to extend the Lunar New Year holidays and businesses to close
some operations. The dollar was steady against a basket of currencies.
U.S. Treasury prices rallied.
New home sales are drawn from permits and tend to be volatile on a
month-to-month basis. Sales jumped 23.0% from a year ago. For all of
2019, new home sales increased 10.3% to 681,000 units, the highest since
Cheaper mortgage rates have supported the housing market since the
Federal Reserve cut interest rates three times last year. The 30-year
fixed mortgage rate has dropped to an average of 3.60% from its peak of
4.94% in November 2018, according to data from mortgage finance agency
Officials from the U.S. central bank are scheduled to meet on Tuesday
and Wednesday. They are expected to reiterate the Fed's desire to keep
rates unchanged at least through this year, which could limit further
declines in mortgage rates. Still, economists are optimistic the housing
market will remain solid.
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A real estate sign advertising a new home for sale is pictured in
Vienna, Virginia, U.S. October 20, 2014. REUTERS/Larry Downing/File
"Household formation trends are running ahead of new housing construction and
this will buoy the housing market in 2020," said Conrad DeQuadros, senior
economic advisor at Brean Capital in New York.
Reports this month showed sales of previously owned homes jumped to near a
two-year high in December and housing starts raced to a 13-year peak. Though
permits for future construction of single-family housing permits fell in
December, that followed seven straight monthly gains.
Housing is expected to have contributed to GDP growth again in the fourth
quarter. Residential investment rebounded in the third quarter after contracting
for six straight quarters, the longest such stretch since the 2007-2009
The Atlanta Fed is forecasting GDP to rise at a 1.8% annualized rate in the
fourth quarter. The economy grew at a 2.1% rate in the July-September period.
The government will publish its snapshot of fourth-quarter GDP on Thursday.
"We still think that real residential investment posted a decent gain in the
fourth quarter," said Daniel Silver, an economist at JPMorgan in New York.
The housing sector, which accounts for about 3.1% of gross domestic product,
remains constrained by a lack of homes, especially in the lower-priced segment
of the market, because of land and labor shortages.
That is keeping prices elevated. The median new house price rose 0.5% to
$331,400 in December from a year ago. New home sales in the South, which
accounts for the bulk of transactions, dropped 15.4% in December to a rate of
347,000 units, the lowest since October 2018. Sales declined 11.8% in the
Northeast, but rose 10.1% in the Midwest and surged 31.0% in the West.
There were 327,000 new homes on the market last month, up 1.6% from November. At
December's sales pace it would take 5.7 months to clear the supply of houses on
the market, up from 5.5 months in November.
About two-thirds of new homes sold in December were either under construction or
yet to be built.
(Reporting by Lucia Mutikani; Editing by Paul Simao and David Gregorio)
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