New-Home Sales Posted Solid Gain in First Half

Sales of newly built homes rose at a solid pace in the first half of 2016, offering fresh evidence of healthy momentum in the U.S. housing market as home-buyers enjoy low interest rates.

Purchases of new single-family homes increased 10.1% in the first six months of the year compared with the same period in 2015, the Commerce Department said Tuesday.

"We expect housing to continue to firm, on average, over the medium term, with a buoyant household sector supporting both prices and volumes," Barclays economist Rob Martin said in a note to clients.

Sales were up 3.5% in June from a month earlier to a seasonally adjusted annual rate of 592,000, the strongest monthly sales pace since February 2008. Sales in June were up 25.4% compared with a year earlier. Economists surveyed by The Wall Street Journal had expected a June sales pace of 559,000. May sales were revised up to a 572,000 annual rate from an earlier estimate of 551,000.

Sales of newly built homes account for only about 10% of total U.S. homebuying activity. Data on purchases of new homes are volatile from month to month and subject to later revision. The estimate that sales rose 3.5% in June from the prior month came with a sizable margin of error—23.9 percentage points, according to Tuesday's report.

While the pace of home construction and purchases of new homes remain depressed compared with levels seen during past economic expansions, the market for newly built homes has gained strength in recent years. New-home sales were up 14.6% in 2015 compared with the prior year after rising 1.9% in 2014, 16.6% in 2013 and 20.3% in 2012.

The housing sector has offered a steady tailwind for overall U.S. economic growth over the past few years. Fixed residential investment contributed 0.52 percentage point to the first quarter's 1.1% growth rate for gross domestic product, the broadest measure of goods and services produced across the U.S. economy, according to Commerce Department data.

Sales of previously owned homes, which make up the bulk of U.S. home purchases, rose 1.1% in June from the prior month to a seasonally adjusted annual rate of 5.57 million, the strongest pace since February 2007, according to the National Association of Realtors. Sales of existing homes were up 3% compared with June 2015.

News Corp, owner of The Wall Street Journal, also owns Move Inc., which operates a website and mobile products for the National Association of Realtors.

U.S. home sales have been bolstered by historically low interest rates. The average rate for a 30-year fixed-rate mortgage was 3.57% in June, down from 3.98% in June 2015, according to Freddie Mac.

"Both home sales and construction have been gradually improving, and residential investment made a noticeable contribution to GDP growth over the past year," Federal Reserve Chairwoman Janet Yellen said in a June speech. "Housing has been supported by low mortgage rates, and while mortgage credit is still difficult to obtain for households with low credit scores or hard-to-document income, those with good credit histories are generally able to borrow at very favorable terms."

Still, inventories have been tight, putting upward pressure on home prices. There was a 4.6-month supply of existing homes available for sale at the end of June at the current sales pace, the Realtors group said last week.

There was a 4.9-month supply of newly built homes available at the end of June, according to Tuesday's report. That was the smallest supply in more than a year.

"While the months' supply figure will move around with changes in the sales rate, with the absolute level of inventories low, it will be changes in demand for new homes that will drive single family housing starts," MFR Inc. Chief U.S. Economist Joshua Shapiro said in a note to clients. The median sale price of a new home sold in June was $306,700, up 6.1% from a year earlier, the Commerce Department said.

Write to Ben Leubsdorf at [e-mail]

(END) Dow Jones Newswires

July 26, 2016 12:55 ET (16:55 GMT)

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