Sales of new homes unexpectedly sank 12.4% in July to the lowest point since government records starting being kept in 1963. It underscored continued weakness in the housing market, which tanked after the expiration this spring of a tax break for home buyers who were already facing a stagnant job market.
The Commerce Department said Wednesday that new single-family houses in July were sold at a seasonally adjusted annual rate of 276,000 units. It marked a 32.4% drop from the same month a year ago.
New home sales are recorded at the beginning of the home-buying process, when a shopper signs a purchase contract, and so give one of the most current snapshots of consumer demand for homes.
The government report followed news Monday that sales of previously owned homes dived 27.2% over the prior month in July, igniting fresh concerns over the state of the economic recovery.
The housing market has been especially weak since the April 30 expiration of the $8,000 buyer's federal tax credit, but the fall in new home sales in July was sharper than many experts had anticipated. Economists surveyed by Bloomberg News had expected some modest improvement in new home sales after they plunged in May and bounced back in June.
"A double-digit drop suggests to me that there wasn't just a tax effect at work in July, but a change in sentiment, a change in the willingness to make such a big purchase," said Christopher Low, FTN Financial chief economist. "It is especially surprising given where mortgage rates were. It is just a reminder of how much work there is still left to do before housing can be deemed healthy again."
The average rate offered on a 30-year fixed home loan fell throughout July and dropped to 4.42% last week — hitting a fresh low, according to Freddie Mac.
"Although mortgage rates are very low, mortgage underwriting requirements are very tight," said Guy Cecala, publisher of Inside Mortgage Finance. "Basically, we know that probably a third or more of the borrowers who bought homes between the 2005 and 2007 period can't qualify now, so that eliminates them as trade-up buyers."
Also troubling Tuesday was a decline in the prices for new homes and a backlog of inventory.
The median sale price for new houses in July was $204,000, a 4.2% drop from the prior month and a decline of 2.9% from July 2009, according to the Commerce Department. The seasonally adjusted estimate of new-home inventory at the end of July was 210,000, representing a 9.1-month supply at the current sales pace.
The Commerce Department also reported Tuesday that spending on big-ticket purchases such as airplanes and new machinery by businesses was weaker than anticipated.
New orders for manufactured durable goods increased 0.3%, far below the 3% analysts had expected, and even that slight bump was mostly due to a spike in aircraft orders, a volatile sector.