New Home Sales in August

Sales of new single-family homes rose more than expected in August after two consecutive monthly declines, but the underlying trend again showed a weakening real estate market due to rising mortgage rates and rising house prices .

The Commerce Department said Wednesday that new home sales rebounded 3.5% to a seasonally adjusted annual rate of 629,000 units last month. The July sales pace was reduced to 608,000 units from 627,000 units previously reported.

Sales in June were also much lower than previously. Economists polled by Reuters anticipated new home sales, which account for about 11% of real estate sales, and rose 0.5% in August to 630,000 units.

New home sales are licensed and tend to be volatile from one month to the next. They increased 12.7% over the previous year.

The housing market is lagging behind a robust economy, with data from last week indicating that previously held home sales were stable in August and building permits dropped to their lowest level in a year.

Economists attribute the weakness of the real estate market to rising borrowing costs and housing prices, which have outpaced wage growth, making home buying unaffordable for some first-time homebuyers.

The 30-year fixed mortgage rate has increased more than 60 basis points this year to an average of 4.65%. House prices rose 5.9% in July from the previous year, according to data released earlier this week.

On the other hand, annual wage growth has remained below 3%, although it has recently shown signs of recovery. The US Federal Reserve is expected to raise interest rates on Wednesday for the third time this year, and mortgage rates are expected to rise further.

Residential investment was contracted in the first half and is expected to decline further in the third quarter.

New home sales in the south, which account for the bulk of transactions, fell 1.7% in August. Sales jumped 9.1% in the West and rose 2.7% in the Midwest. They climbed 47.8% in the northeast, the smallest segment of the new housing market.

The median price of new homes rose 1.9% to $ 320,200 in August from the previous year. There were 318,000 new homes on the market in August, the strongest since February 2009 and up 1.6% from July. The offer is however barely more than half of what it was at the height of the real estate boom in 2006.

At the pace of sales in August, it would take 6.1 months to release the supply of homes in the market, compared to 6.2 months in July.

Nearly two-thirds of homes sold last month were under construction or construction.