Forget July's slump in new-home sales, mortgage rates are reviving the housing market

U.S. new-home sales up 4.3% vs. a year ago despite July dip

The numbers: Sales of new U.S. homes have zig-zagged up and down for months, but they appear to be creeping higher again overall with mortgage rates falling to multiyear lows.

The government on Friday said new-home sales fell almost 13% in July (https://www.census.gov/construction/nrs/pdf/ newressales.pdf)to an annual rate of 635,000, but there's a huge caveat.

The pace of new-home sales in June was raised to 12-year high of 728,000 from a preliminary reading of 646,000 -- what Regions Financial chief economist Richard Moody called a "ridiculously large revision."

The last time sales were that strong was in 2007, just before the Great Recession got underway.

The initial monthly report on new-home sales, to be sure, is often quite volatile and prone to large revisions, as was the case in June. Yet in a good sign the level of sales last month was 4.3% higher compared to July 2018.

(http://www.marketwatch.com/story/weaker-unions-globalization-not-to-blame-for-shrinking-slice-of-income-pie-for- workers-2019-05-29)What happened: Sales fell in all four major regions in July, led by a 50% decline in the Northeast. Fewer new homes are built each year in the densely populated Northeast than other parts of the country such as the South and West, where more than 80% of new construction takes place.

Yet sales are still running higher in the Northeast, South and West compared to one year ago, when the housing market hit a rough patch after years of steadily climbing demand. Only in the Midwest have sales declined.

Higher demand this summer is also leading to higher prices. The median price of a new home rose to $312,800 in July from $306,000 in June, though it's still below the year-ago level of $327,500.

The supply of new homes on the market, meanwhile, stood at 6.4 months in July. A six-month supply of new homes for sale is typically considered the sign of a well-balanced housing market.

Big picture: Tumbling mortgage rates appear to have spurred sales, and with rates poised to fall even further, the modest momentum likely can continue. Home builders have become more optimistic in the past several months.

What could smother demand is a widening U.S. trade war with China if it brings more harm to the economy and reignites talk of recession. Prospective buyers are willing to get into the market because the labor market is strong and layoffs are low, but any sign of an impending downturn could scare them off.

What they are saying?: "Lower rates will drive the big decision to buy or not to buy, assuming that job gains and wage gains continue to head in a northerly direction," said senior U.S. economist Jennifer Lee of BMO Capital Markets. " But if 'recession' talk amps up, that could frighten buyers enough to push them back to the sidelines."

Market reaction: The Dow Jones Industrial Average and S&P 500 plunged in Friday trades after China unveiled stiffer tariffs on $75 billion in U.S. goods in a retaliatory move against U.S. duties. President Trump responded by urging American firms to leave China.

Read:Escalating U.S.-China trade war threatens global economy, Trump reelection (http://www.marketwatch.com/story/ escalation-in-us-china-trade-war-threatens-global-economy-poses-trump-reelection-risk-2019-08-23)

The 10-year Treasury yield fell to 1.54%, an extremely low level that reflects the angst over the trade war and a deteriorating global outlook. Just 10 months ago the yield stood at a seven-year high of 3.23%.

-Jeffry Bartash; 415-439-6400; AskNewswires@dowjones.com


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  08-23-19 1324ET
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