Thursday, May 24, 2012

New U.S. home sales climb above forecast

Demand for new U.S. homes increased more than forecast in April as low mortgage interest rates and an improving economy drew buyers.

Purchases rose to a 343,000 annual rate, up 3.3 percent from a revised 332,000 in March, the Commerce Department reported today in Washington. The median forecast in a Bloomberg News survey of economists was 335,000. Data released Tuesday showed sales of existing homes rose in April in every region.

Job growth, affordability and record-low interest rates are bringing single-family homes within reach of more buyers, chipping away at a weakness in the world’s largest economy as risks from Europe’s debt crisis climb. At the same time, banks remain reluctant to lend and foreclosures continue to move through the system, which means a sustained housing recovery will take time to develop.

“It’s very clear now that the housing market has turned a corner,” said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. “The only question is how strong the rebound is going to be. It bodes well for the broader economy.”

Stocks held earlier losses after the report amid concern that Greece may leave the euro as the region’s leaders meet in Brussels. The Standard & Poor’s 500 Index dropped 0.7 percent to 1,307.13 at 10:14 a.m. in New York.

Survey Results

Estimates of the 72 economists in the Bloomberg survey ranged from 325,000 to 375,000. New home sales are logged when purchase contracts are signed. The March reading was revised up from a previously estimated 328,000.
The median sales price increased 4.9 percent from the same month last year, to $235,700, today’s report showed.

Purchases increased in three of four U.S. regions last month, led by 28 percent gains in both the Midwest and West. The South was the only area to show a decline, falling 11 percent.
The number of newly constructed houses on the market rose to 146,000 from 144,000 in March, which was the fewest reported in data going back to 1963. It was the first increase in inventory since April 2007.

Because the rate of sales climbed faster than inventory, the month’s supply of new houses on the market dropped to 5.1 months from 5.2 months in March.
Demand for new houses peaked at 1.28 million in 2005 during the housing boom, then fell to 306,000 million in 2011, the lowest in records dating back to 1963.

Smaller Share
Newly constructed houses made up 6.7 percent of the residential market last year, down from a high of 15 percent during the boom of the past decade, making them an unreliable predictor of the overall single-family market. Buyers are taking advantage of the large inventory and affordability of previously owned homes.

Sales of those existing homes, tabulated when a contract closes, increased 3.4 percent to a 4.62 million annual rate in April, just shy of the 4.63 million in January that was the highest in almost two years, the National Association of Realtors reported earlier this week. Resales could rise to a 4.6 million to 4.7 million range this year, the group projected, from 4.26 million in 2011.

Builder confidence rose to a five-year high in May, with the National Association of Homebuilders/Well Fargo sentiment gauge rising to 29. The measure had been as low as 14 in September. A measure of sales expectations for the next six months rose to 34 from a revised 31, and the gauge of buyer traffic increased to 23, the highest since April 2007, homebuilders reported earlier this month.

More Orders
Toll Brothers Inc., the largest U.S. luxury-home builder, today reported a second-quarter profit that beat estimates as sales and orders increased amid improving demand for the company’s move-up houses. Toll’s homes are marketed to wealthier buyers with easier access to cash and credit. Bookings rose 14 percent from a year earlier to 671 homes.
“It appears that the housing market has moved into a new and stronger phase of recovery,” Chief Executive Officer Douglas Yearley said in the statement. “The spring selling season has been the most robust and sustained since the downturn began.”
Lower borrowing costs are helping underpin demand. The average cost of a 30-year, fixed-rate mortgage fell to 3.79 percent last week, an all-time low, according to a Freddie Mac survey of lenders.

Tightening Credit
Nonetheless, some banks remain hesitant to lend. In the first three months of the year, 5.6 percent of lenders said they had tightened credit standards for long-term, fixed-rate mortgages, according to an April Federal Reserve survey of senior loan officers.
Some banks continue to work through the costs of the foreclosure crisis. BB&T Corp., a regional bank based in Winston- Salem, North Carolina, is clearing its portfolio of failed real estate loans even as it works to grow new residential construction lending, Chief Financial Officer Daryl Bible said.

“We’re actually making construction loans again, not robust but we’re making loans,” Bible said at a May 22 investor conference. “So, there is definitely more activity than what we’ve had in the last three years.”

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