Sales of new homes hit six-month high in April

Purchases of new homes rose in April by the most in six months as buyers took advantage of falling mortgage rates.

The 6.4 percent increase to a 433,000 annualized rate followed a revised 407,000 in March that was larger than initially estimated, Commerce Department data showed Friday in Washington. The median forecast of 75 economists surveyed by Bloomberg called for the rate to accelerate to 425,000. The April gain reflected a surge in Midwest sales.

Declining borrowing costs and greater employment opportunities raise the prospects for an industry that has struggled to build on gains made earlier last year. A pickup in construction that puts more properties on the market and slows price gains would help improve affordability and attract buyers.

"We definitely are seeing a rebound in activity," Anika Khan, a senior economist at Wells Fargo Securities in Charlotte, N.C., said before the report. "We are in the middle of the home-buying season and should start to see a bit more pickup with more traditional buyers coming into the market" even as first-time home buyers remain on the sidelines.

Estimates for April home sales ranged from 395,000 to 460,000 after a previously estimated 384,000 pace a month earlier. New-home sales, which account for about 7 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Figures Thursday from the National Association of Realtors showed a 1.3 percent gain in closings on sales of previously owned homes. Closings typically occur a month or two after a contract is signed. A bigger supply of properties helped lure buyers, the data showed. The number of available properties climbed to an almost two-year high, helping slow the pace of price appreciation.

At the same time, the existing-home sales figures included signs of underlying softness. Investors continued to play a big role in the market, the April increase was driven mainly by purchases of condominiums and the share of first-time buyers was little changed.

Lower limits on loans guaranteed by the Federal Housing Administration are also a hurdle for the industry.

Friday's report showed the median sales price of a new house declined 1.3 percent from April 2013 to $275,800.

I think we'll see an improvement, albeit maybe a little bit slow, but I do think that we're on the right track." Nicholson

The increase in demand last month was led by a 47.4 percent surge in the Midwest to an 84,000 annual rate, the fastest since November 2007. Purchases also climbed 3.1 percent the South. They fell in the Northeast and were unchanged in the West.

There were 192,000 new houses on the market at the end of April, representing 5.3 months of supply at the current sales pace after 5.6 months in March.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.

Builder optimism has eased as well, reflecting still-tight credit conditions and limited availability of lots. Confidence dropped in May to the lowest level of the year, according to a gauge of builder sentiment from the National Association of Home Builders/Wells Fargo.

"I think that through the rest of the year, we'll see an improvement, albeit maybe a little bit slow, but I do think that we're on the right track," Larry Nicholson, president and chief executive officer at Westlake Village, Calif.-based Ryland Group Inc., said during a May 14 presentation.

Investors have soured on builder shares this year. The S&P Supercomposite Homebuilding Index has dropped 4.2 percent this year through Thursday.

Some relief may be in store for potential buyers as borrowing costs decline. The average rate on a 30-year, fixed mortgage dropped to 4.14 percent in the week ended Thursday, the lowest level since October, according to Freddie Mac in McLean, Va.

Builders are gradually adding to supply of single-family homes. A report last week from the Commerce Department showed construction starts of one-family properties increased for a third straight month, to 649,000 at an annual rate in April.

Home appliance maker Whirlpool Corp. in Benton Harbor, Mich., is upbeat about demand.

"We are, I would say, still in the early stages of a rebound in the housing market," Chief Financial Officer Larry Venturelli said at a May 14 homebuilding conference. Underlying demand in the housing markets "continue to be very strong."
Bloomberg