Sales of new homes increase 23.6% in June

But total seen as unimpressive as experts note drag of joblessness, tight credit

A sign marks a house for sale Monday in the Villages of Wellington neighborhood in west Little Rock.
A sign marks a house for sale Monday in the Villages of Wellington neighborhood in west Little Rock.

— Sales of new homes jumped last month, but it was the second-weakest month on record, with the lackluster economy making potential buyers skittish about shopping for homes.

New-home sales rose 23.6 percent in June from a month earlier to a seasonally adjusted annual sales pace of 330,000, the Commerce Department said Monday. May’s number was revised downward to a rate of 267,000, the slowest pace on records dating back to 1963. Sales for April and March were also revised downward.

“Builders sold almost no new homes in May, so the sharp rise in June shouldn’t be taken as a sign the housing market is suddenly on fire,” wrote Joel Naroff, president of Naroff Economics Advisers.

Stocks got an immediate lift from the data, and the Dow Jones industrial average rose 100 points to 10,525.43.

Michael Pakko, state economic forecaster for the Institute for Economic Advancement at the University of Arkansas at Little Rock, said building permits for new homes in Arkansas were up 41 percent in the first five months of 2010 from the same period last year, though still down 10 percent from2008 levels.

“We have seen, generally speaking, that the economy in Arkansas hasn’t been as seriously affected as most of the country,” Pakko said.

State-level figures were not included in the Commerce Department’s report.

High national unemployment, slow job growth, and tight credit have kept people from buying homes. The industry received a boost this spring when the government offered tax credits to homebuyers. But since they expired in April, the number of people looking to buy has dropped, even with the lowest mortgage rates in decades available.

“There’s no question that [a sales pace of 330,000 new houses] is a weak number, but it seems to be more stable,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

“The bottom line to all of this is that we need more jobs.”

Sales are down 72 percent from their peak annual rate of 1.39 million in July 2005. More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year. That was the weakest yearly total on records dating back to 1963.

New-home sales made up about 7 percent of the housing market last year. That’s down from about 15 percent before the bust.

Weak sales mean fewer jobs in the construction industry, which normally power economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

“We’ll probably reach an equilibrium level over the next couple of months and I wouldn’t be surprised if we slog along the bottom,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn.

“Until we get a more definitive turn in growth, in particular employment, housing demand is going to remain very soft.”

Builders have sharply scaled back construction. The number of new homes up for sale in June fell 1.4 percent from a month earlier to 210,000, the lowest level in nearly 42 years.

Because of the sluggish sales pace, it would take eight months to exhaust that supply. That’s above a healthy level of about six months.

The median sales price in June was $213,400. That was down 0.6 percent from a year earlier and down 1.4 percent from May.

New home sales rose by 46 percent in the Northeast, 33 percent in the South and 21 percent in the Midwest. The West posted a nearly 7 percent decline.

“One month doesn’t make a trend and the roadblocks to a healthy housing market are high, the most important one being the still-high jobless rate,” wrote BMO Capital Markets economist Jennifer Lee in a note to clients. “But with borrowing costs at record lows, prices also remaining low, those with jobs who can afford a home may be enticed.”

Purchases of previously owned homes, which are tabulated when a contract closes, fell a less-than-forecast 5.1 percent in June, sustained by a backlog of deals waiting to settle, figures from the National Association of Realtors showed last week.

Information for this article was contributed by Alan Zibel of The Associated Press, Steve Painter of the Arkansas Democrat-Gazette, Greg Robb of MarketWatch and Courtney Schlisserman of Bloomberg News.

Front Section, Pages 1 on 07/27/2010

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