Sales of new homes nationwide fell sharply last month, suggesting that the sluggish economy is beginning to erode the resilient housing market.
The Commerce Department said Thursday that new-home sales plunged 9.5% in April from the previous month to a seasonally adjusted annual rate of 894,000. The drop was the largest in four years, although analysts attributed it partly to new measuring techniques.
Sales fell in all regions of the country, but the least in the West. Separate reports showed that sales of new homes in Southern California remained strong in April.
Still, analysts have been expecting weaker home sales as nationwide unemployment has been rising and the slumping economy, once primarily limited to manufacturing and high-technology sectors, has evolved into a broader slowing affecting many more households.
"The housing market is not falling apart, but it is slowing in consistency with a broader deterioration of the labor market," said Brian Nottage, an economist at Economy.com, a consulting firm in West Chester, Pa.
A new report Thursday showed joblessness continues to rise, which would further dampen the housing market. The Labor Department said the number of Americans claiming state unemployment insurance rose last week to a seasonally adjusted rate of 407,000, up from 392,000 the previous week.
Housing sales nationwide have been one of the economy's brightest lights, helping to keep the economy from slipping into a deeper slump. Declining mortgage rates in the last year have helped prop up home sales, but rates have been climbing higher.
In April, the average rate on a 30-year fixed-rate mortgage was 7.07%, down from 8.2% in the same month last year. But this week, that rate edged up to 7.2%.
Analysts believe the declining stock market wealth of individuals also will take a toll on housing.
But the housing market has been benefiting from investors shifting funds from Wall Street to real estate. Economists say that despite April's bigger-than-expected decline in new-home activity, sales for the first four months of the year were above the same period a year ago.
"I think this is telling us that we're at low risk of a significant downturn in the housing market, for the next six months at least," said John Burns, an analyst at Meyers Group, an Irvine research firm.
Other economists agreed that the housing market won't slow by much this year, if at all. But some said the latest figures suggest that the best of times is over.
The Commerce report showed that by region, the South had the biggest decline in new-home sales last month, falling 13% from March. Sales in the West were off less than 2%, partly because of the strength of the big Southern California market.
The Southland recorded 2,770 sales last month. Although that figure isn't seasonally adjusted, that was up 4% from a year ago and represented the strongest April since 1991. The median price was just under $300,000, according to DataQuick Information Systems Inc., a La Jolla research firm.
New-home sales have risen in Los Angeles, Orange, Ventura, Riverside and San Bernardino counties combined for 52 out of the last 60 months, said John Karevoll, a DataQuick analyst. The supply of homes has limited sales in the Southland, where it is much harder to get approval to build than in other parts of the nation.
Even if sales continue to drop nationally, the relatively small supply of new housing probably will limit the damage.
New-home supply has slipped under four months, falling to about 33% less than the typical benchmark of a six-month supply as lenders and builders have kept inventory trim in hopes of avoiding an inventory of unsold houses.
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Seasonally adjusted annual rate, in thousands of units:
Source: Commerce Department