New-Home Sales Hit Lowest Level
By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, August 25, 2010; 11:51 AM
Sales of newly built homes dropped to their lowest level since the government started tracking the numbers more than four decades ago, with demand for home purchases down in all four regions of the country.
The Commerce Department reported Wednesday that new homes sold in July at an annual rate of 276,000, down 12.4 percent from June and down 32.4 percent compared with the same time last year.
Housing experts attribute the weak results to the expiration of a federal tax credit April 30. They said the program probably lured people into buying homes earlier than they had planned, thereby eating into future sales.
But many economists say July’s dismal results, which add to grim sales data released Tuesday on existing homes, suggest that the problems go beyond the tax credit.
“There’s clearly something more at play here,” said Mark Vitner, a senior economist at Wells Fargo Securities. “The economy is backsliding a little bit. While it’s too soon to tell if that’s going to result in another recession, it seems clear that consumers are holding back on committing to major purchases, such as buying a home.”
The drop was led by the Northeast, where new home sales fell nearly 35 percent. Sales declined 25.5 percent in the Midwest, 15.1 percent in the South and 9.8 percent in the West.
The median sales price of new houses sold last month was $204,000, down 6 percent from June and 4.8 percent from a year earlier.
Although new-home sales are dwarfed by activity in the existing-homes market, they are closely watched because the construction industry contributes to job creation and economic growth.
The struggle for the new-homes segment is that it is competing with the much larger existing-homes sales market, which includes aggressively priced foreclosures and other homes offered at steep discounts.
“Plus the underlying demand is just extremely weak, despite rock-bottom mortgage interest rates,” said Nigel Gault, an economist at IHS Global Insight.
Mortgage applications dropped off 43 percent since the tax credit expired and started inching up in four of the past five weeks, mostly driven by people looking to refinance to take advantage of the low rates, Vitner said. Cumulatively, applications have risen only about 1.5 percent in the past five weeks, he said.
On Tuesday, the Mortgage Bankers Association reported that refinance applications continued to climb in the week ending Aug. 20, with the average rate on a 30-year fixed mortgage at 4.55 percent.
The group said the index that measures refinancing activity increased 5.7 percent from the previous week to its highest level since May 1, while home purchase mortgage applications increased 0.6 percent.
The poor new-home sales results follow another damaging report on the existing-home sales. Those sales fell in July to their lowest level in more than a decade to an annual rate of 3.83 million, down 27.2 percent from June’s pace.