U.S. New-Home Sales Plunge as Mortgage Rates Rise

[Purveyor]

Source: Associated Press

(WASHINGTON) — Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may weigh on the housing recovery.

The Commerce Department said Friday that U.S. sales of newly built home dropped 13.4 percent to a seasonally adjusted annual rate of 394,000. That’s the lowest pace in nine months. And it is down from a rate of 455,000 in June, which was revised sharply lower from a previously reported 497,000.

New-home sales have risen 7 percent in the 12 months ending in July. The annual pace remains well below the 700,000 that is consistent with a healthy market.

The housing market has been one of the strongest performers this year in an otherwise sluggish economy, helped by steady job gains and low mortgage rates. But mortgage rates have risen a full percentage point since May and have started to steal some of the market’s momentum.


Read more: http://business.time.com/2013/08/23/u-s-new-home-sales-plunge-as-mortgage-rates-rise/#ixzz2co5Nuvlw

[geek tragedy]

1. Purchase rates are artificially low now because everyone rushed to apply for mortgages

and buy homes while rates were lower. So, the rates created a temporary burst in activity followed by a temporary lull to bring things back into equillibrium.

Eventually, the market will return to something approaching normalcy.

[itsrobert]

2. And there are a shortage of "New Homes" as many builders cut back on building

It takes awhile for the industry to gear up for the new demand. Many projects were put on hold and it takes awhile for new housing areas to get approved by the local authorities.

[geek tragedy]

4. and there was a shortage of resales because new homeowners didn't want to list

without knowing they could find somewhere to live afterwards.

Inventory has to climb before things settle down.

[reformist2]

3. The real estate market is trapped. It depends on completely crazy-low interest rates.

The one thing that nobody* wants is the one thing that will cure the market - lower sticker prices.


*By nobody I mean the people who already own homes. Remarkably, the press never seems to care much about first-time homebuyers.

[geek tragedy]

5. There was a dramatic reduction in prices in 2006-2008.

Ownership/renting costs are not out of whack anymore.

[reformist2]

6. Sez you. I think average prices need to drop another 30-40%.

And rents will drop along with them. The RE market is the last financial bubble.

[itsrobert]

9. Since the market value of my home is up 30 percent from 2 years ago

That would mean my home needs to drop at least 50 percent in your assessment?

[Hosnon]

11. Perhaps not 50%... but do you honestly believe that the value of your home increased

by 30% in two years?

If so, what is the source of the increase? Did you do massive upgrades?

[itsrobert]

12. No, it's based on "sold" market comparables in my area

That's usually the standard to assess a property.

[Hosnon]

13. Then that's a bubble. nt.

[itsrobert]

14. My home is still assessed 35 percent below it's all time high

n/t

[geek tragedy]

16. Well, everyone gets a very small voice in the housing market nt

[we can do it]

19. Where do you live? Its WAY cheaper to buy in Ohio than rent.

Prices are ridiculously low...Banks are still not allowing many to buy that should be able to.

[Supersedeas]

18. no easy way out

[magical thyme]

20. wages need to go back up to 1st world status. why should people who already own homes be ruined?

We needed a place to live. We bought what we could afford in the old economy.

What will cure the market -- not just the housing market -- but the economy overall, is for companies to pay is a living wage in *this* country, not what passes for a living wage in Bangladesh.

[tofuandbeer]

7. It seems to me, that if the GOP would get off the Obamacare thing and focus on jobs,

the housing market would improve, along with everything else.

[onehandle]

8. I will never own real estate in the United States again.

That's all I got.

[PasadenaTrudy]

17. Ditto! n/t

[Jesus Malverde]

10. Last I heard 60 percent of home sales were cash. Maybe the cash is drying up with the end of QE3..nt

[Mosby]

15. U.S. July existing home sales jump to three-year high

(Reuters) - U.S. home resales jumped in July to their highest level in over three years, suggesting a sharp increase in borrowing costs is having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent to an annual rate of 5.39 million units.

That was above analysts' expectations and could make the Federal Reserve more comfortable with its plans to wind down a major economic stimulus program. Plans to end the program have already pushed mortgage rates higher.

While some of July's surge in home resales may reflect buyers rushing to lock in rates before they rise further, the data inspired some confidence that the housing recovery was strong enough to withstand higher borrowing costs.

http://www.reuters.com/article/2013/08/21/us-usa-economy-housing-idUSBRE97K0ON20130821

Rates are still very low historically, maybe the drop in new home sales is due to pricing, and existing homes offer buyers a better value.