Purchases of new homes fell in February to the lowest level in five months, a sign the industry may take time to pick up after inclement weather dampened demand earlier in the year.
Sales declined 3.3 percent to a 440,000 annualized pace, following a 455,000 rate in the prior month that was the strongest in a year, figures from the Commerce Department showed Tuesday in Washington.
LOCAL MARKET SOFTENS
In Las Vegas, sales dipped as the market showed signs of softening, housing experts said.
Home Builders Research reported Tuesday that builders across the Las Vegas Valley closed on 433 new homes in February, down 15 percent compared with the same month a year earlier. Closings in January and February totaled 834, a year-to-year decline of 194 units, or 19 percent.
Local research firm SalesTraq reported on Monday a similarly steep decline in new-home closings in January: Sales were down 21.7 percent year to year, falling to 401 units.
Experts blamed the national sales drop to unusually frigid temperatures, as well as rising mortgage rates, higher property values and a lack of supply that kept prospective buyers away from the market for new and existing properties. Bigger gains in employment and consumer sentiment would help spur the recovery in homebuilding, sustaining its contribution to economic growth and boosting earnings at companies such as Lennar Corp. and KB Home.
“A lot of the weakness is due to the weather and that effect should be getting over soon,” David Sloan, a senior economist at 4cast Inc. in New York, said before the report. “We expect a moderate improvement in demand. Affordability will still be decent. The overall picture is positive, but I don’t want to suggest a surge in sales all of a sudden.”
The downward dynamic in new-home sales was a little different in Southern Nevada, though. Yes, higher interest rates and a lack of supply were issues here. But the biggest factor was a resurgence in the resale market, said Brian Gordon, a principal with SalesTraq.
“While resale availability is not out of control by any measure, it is much more aligned with a normalized market,” Gordon said. “It’s been a shift from the relatively tight level of availability we’ve seen over the better part of the past year. That’s creating somewhat of a more competitive environment for builders.”
There are pricing pressures, too. The median closing price of a local new home soared to $296,367 in February, up $61,900, or 26.4 percent, from February 2013, Home Builders Research reported. The median resale price was nearly 45 percent lower, at $165,000, making it a more affordable market segment than new homes.
Still, experts said the local housing market is stable. Dennis Smith of Home Builders Research noted that housing prices are steady, and consumer traffic through new-home subdivisions has held up despite higher interest rates.
Added Gordon: “Particularly in the resale market, we’ve seen less volatility in recent months, and sales volumes have remained relatively healthy. Buyers are more likely comprised of end-users as we’ve seen investor purchases start to pull back modestly. And availability levels are more suitable given the size of our market. All of those factors would suggest that there’s increased stability as opposed to prior periods of falling price points or substantial price increases.”
National numbers fell within the range of economists’ estimates, which ranged from 406,000 to 506,000. The reading for the prior month was revised down from a previously reported 468,000.
Another report Tuesday showed prices of home resales climbed at a slower pace in the year through January than a month earlier, indicating momentum in property-value appreciation is cooling.
The S&P/Case-Shiller index of 20 cities increased 13.2 percent from January 2013, the smallest gain since August, after rising 13.4 percent in the 12 months through December. Compared with the prior month, prices rose 0.8 percent.
The median sales price of a new house decreased 1.2 percent from February 2013, to reach $261,800, according to today’s Commerce Department report. It was the biggest year-to-year decline since June 2012. The median can be affected by the mix of sales by region as prices are generally higher in the Northeast and West where demand declined.
Purchases dropped in three of the four regions, led by a 32.4 percent slump in the Northeast. The West decreased 15.9 percent and the South fell 1.5 percent. Demand in the Midwest jumped 36.7 percent to the highest level since May 2013, after dropping almost 20 percent the prior month.
The supply of homes at the current sales rate climbed to 5.2 months from 5 months in the prior month. There were 189,000 new houses on the market at the end of February, the most since December 2010.
New-home sales, which accounted for about 8 percent of the residential market in 2013, are tabulated when contracts are signed, making them a timelier barometer than purchases of previously owned dwellings. Sales of existing homes are tabulated when a deal closes, typically a month or two later.
The weather depressed parts of the housing market, recent reports showed. Sales of previously owned properties declined in February to the lowest level since July 2012, according to data from the National Association of Realtors. The National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March.
Warmer temperatures may revive construction and help bring more buyers out in coming months.
The recent weakness is “a temporary pause,” and the homebuilding industry is still in the early stages of recovery, Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, said in a statement on March 5.
Lennar, the biggest U.S. homebuilder by market value, last week reported a fiscal first-quarter profit that beat analysts’ estimates as it sold more homes at higher prices.
“The housing-market recovery continues as we begin to enter the more vibrant seasonal months of the year,” Chief Executive Officer Stuart Miller said on a March 20 conference call with analysts. “The fundamental drivers of improvement in the housing market remain a steadily improving economy with a slowly improving employment picture unlocking pent-up demand, while supplies remain constrained to meet that demand.”
Los Angeles-based KB Home also reported fiscal first- quarter earnings that beat estimates as it raised prices and opened communities in high-cost, land-constrained markets, such as parts of California.
Rising borrowing costs have limited affordability. The average 30-year, fixed-rate mortgage rate was 4.32 percent in the week ended March 20, up from 3.54 percent a year earlier, according to Freddie Mac in McLean, Va.
Federal Reserve policymakers last week gave themselves room to keep borrowing costs low at least until next year by dropping a link between the benchmark interest rate and a specific level of unemployment. The central bank also reduced the monthly pace of bond purchases by $10 billion, to $55 billion.
Household formation would ultimately generate new construction, Fed Chair Janet Yellen said during a news conference after the policy meeting.