WASHINGTON – Sales of new homes in the United States dipped slightly in August from July but the median price of homes sold during the month rose by a record amount.
New-home sales edged down to a seasonally adjusted annual rate of 373,000 in August, a dip of 0.3 per cent from July’s revised rate of 374,000, the Commerce Department said Wednesday. That had been the fastest pace since April 2010 when government tax credits were boosting sales.
Sales in August were up 27.7 per cent from the pace a year ago. But even with that gain, new-home sales remain well below the annual pace of 700,000 that economists consider healthy.
The median price of a new home jumped 11.2 per cent in August to $256,900, the biggest one-month gain on record.
The median sales price was up 17 per cent compared to August 2011. The $256,900 median price in August was the highest sales price since new homes sold for $262,600 in March 2007, a period when prices were coming down from the peaks reached during the housing boom.
By region of the country, sales rose by the most in the Northeast, climbing 20 per cent. Sales were up 1.8 per cent in the Midwest and 0.9 per cent in the West. However, sales in the South, which accounts for nearly half of new home sales, dropped 4.9 per cent.
Robert Kavcic, an economist at BMO Capital Markets, said the August report was “more evidence that a recovery in U.S. housing is taking root.”
Kavcic said that the drop in sales in the South could have been influenced by disruptions from Hurricane Isaac in August.
In less optimistic news, the Business Roundtable released a survey of U.S. chief executives which showed that only 29 per cent of its member CEOs planned to increase hiring over the next six months. That’s down from 36 per cent in June. The latest quarterly survey showed that the executives were more pessimistic about future sales and the overall U.S. economy.
The housing market has been making a modest but steady recovery, helped by the Federal Reserve’s efforts to give the economy a boost through lower interest rates. The Fed earlier this month announced a third round of bond buying in an effort to stimulate the economy and attack unemployment which has been stuck above 8 per cent since early 2009.
Sales of previously occupied homes jumped in August to the highest level since May 2010. Builder confidence is at a six-year high and construction of single-family homes rose last month to the fastest annual rate in more than two years. However, even with the gains, home sales and construction remain well below healthy levels.
On Tuesday, the Standard & Poor’s/Case Shiller home price index showed home prices increased 1.2 per cent in July compared to July 2011. That was the second straight year-over-year price gain after two years when prices had fallen every month compared to the same month in the previous year.
The broader economy is expected to benefit from rising home prices. When home prices rise, people typically feel wealthier and spend more. Consumer spending accounts for 70 per cent of economic activity.
Home sales have been bolstered by the lowest mortgage rates on record. The average rate on the 30-year fixed mortgage touched a record low of 3.49 per cent last week. The rate has been below 4 per cent all year. Some economists are forecasting that the Fed’s new program to $40 billion a month in mortgage backed securities will push 30-year mortgages down close to 3 per cent in coming months.
In addition to increased demand from buyers attracted by the low rates, prices are also rising because of a decline in foreclosures and sales of other deeply discounted homes. Many homes in the foreclosure process will likely come on the market in the coming months, which could drag on prices.
However, the factors supporting a revival in housing must confront lingering problems. Many Americans, particularly first-time homebuyers, are unable to qualify for a mortgage or can’t afford larger down payments, tougher standards that banks are requiring following the subprime mortgage crisis.
Though new homes represent only a small portion of the housing market, they have a disproportionate impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the National Association of Home Builders.