November 28, 2012 4:16 pm

US new home sales disappoint

US new home sales fell slightly in October while the previous month’s numbers were revised sharply lower, disappointing industry watchers who have championed the housing market as a bright spot in an otherwise sluggish US economic recovery.

Sales of new single-family houses fell 0.3 per cent last month to a seasonally adjusted annual rate of 368,000, down from the revised September rate of 369,000, the commerce department said on Wednesday.

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Government data for new homes sales are subject to strong revisions. It was initially reported that sales rose to 389,000 in September – the highest rate since April 2010, when a federal homebuyer tax credit inflated purchases. Economists surveyed by Bloomberg expected an October level of 387,000.

Even so, recent housing data have pointed to rising home prices, a jump in sales and growing positive sentiment from homebuilders as demand for new homes and apartments increases. Economists hope a revival of the US housing market will fuel the country’s economic growth.

“We are inclined to take the stagnation of new home sales in October and the preceding months with a grain of salt. Other indicators, such as homebuilder confidence and housing starts have been improving of late,” said Teunis Brosens, an economist at ING.

“Taken together with the slow but steady improvement in existing home sales and prices, it is clear that the US housing market is slowly but surely on the mend,” he added.

New home sales are up 17.2 per cent from October 2011’s estimate of 314,000 while the median price of a new home rose 5.7 per cent from a year ago.

Home prices have risen as the glut of unsold homes on the market has begun to peter out. The excess supply of homes that were built during the housing boom has declined while the amount of previously owned homes available for sale has fallen to a 10-year low.

This has been partly driven by individual and institutional investors, such as private equity groups, who have snapped up foreclosed and distressed properties at depressed prices, spotting an investment opportunity.

The Standard & Poor’s/Case-Shiller home price index, released on Tuesday, found that prices rose in most big cities in September compared with August. The index rose by a seasonally adjusted 0.3 per cent in September and is up 3 per cent over the past year.

Some analysts said new home sales have benefited from record-low mortgage rates and from a decline in new-build price premiums, as the gap between the cost of a new and previously owned home narrows, driving more Americans to make purchases.

Others, such as Ian Shepherdson, chief economist at Pantheon Macroeconomics, were less optimistic.

“The trend in new home sales now looks flat, despite the continued surge in the National Association of Home Builders index,” Mr Shepherdson said.

“This disparity likely reflects market share gains by larger, well-financed homebuilders, who seem to be over-represented in the NAHB survey while smaller, bank-dependent developers continue to struggle,” he said.

The seasonally adjusted estimate of new houses for sale at the end of October was 147,000. This represents a supply of 4.8 months at the current sales rate.

Aside from speculative construction remaining at low levels as many developers find it difficult to get credit from banks, a number of other factors continue to hamper the housing recovery, including stagnant income growth, high unemployment levels, lingering uncertainty about the macroeconomy and the still large number of homes in the foreclosure pipeline.

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