New Home Sales Fall More than Expected, Down 6.6% in June
Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The median home price also fell.
The news followed separate economic reports on durable goods and jobless claims that painted a mixed picture of the economy. While durable goods orders rose slightly less than expected, jobless claims unexpectedly decline, showing that the labor market remains robust.
The Commerce Department said sales of new single-family homes dropped by 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units.
The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January. Sales are now 22.3 percent below the level of a year ago.
The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago. It was the biggest year-over-year price drop since a 6.5 percent fall in April. The median price is the point where half the homes sold for more and half for less.
The big drop in new home sales followed a report Wednesday showing that existing home sales dropped by 3.8 percent in June to a five-year low. The weakness reflects spreading troubles in the mortgage market as more borrowers are defaulting on their loans, dumping those homes back on an already glutted market. In addition, banks and other lenders are tightening their standards, making it harder for prospective buyers to qualify for loans.
By region of the country, new home sales fell by 27.1 percent in the Northeast, 22.5 percent in the West and 17.1 percent in the Midwest. Only the South saw an increase in sales, a gain of 7.6 percent.
Economists believe the weakness in housing could linger through the rest of this year until a huge overhang of unsold homes is worked down. For June, the inventory of unsold new homes was unchanged at 537,000 units.
On Thursday, Moody's Economy.com Economist Mark Zandi said he expects the weakness in the housing market could linger into next summer, with median home prices fall about 9% from their peak in 2005.
Orders Boosted By Aircraft Demand
In other economic news, the Commerce Department said that orders for big-ticket manufactured products increased by 1.4 percent last month, the best showing since a 5.1 percent increase in March. Orders had declined by 2.3 percent in May.
The June strength in durable goods orders was concentrated in orders for commercial airplanes, which soared by 28.7 percent, reflecting strong demand for Boeing Co. aircraft. Aircraft orders, which are extremely volatile from month to month, had fallen by 21 percent in May.
Meanwhile, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits fell to 301,000 last week, a drop of 2,000 from the previous week. The performance was better than the slight rise that economists had been expecting.
Economists believe that the economy regained momentum in the spring after a lackluster start to the year in which economic growth slowed to a dismal annual rate of 0.7 percent from January through March, the weakest showing in more than four years.
The government will report on April-June growth on Friday, with many analysts believing the report will show a solid rebound to growth of around 3.2 percent despite continued troubles in the housing industry.
The report on orders for durable goods, items expected to last at least three years, showed that the strength was concentrated in aircraft with many other sectors showing declines last month.
Overall transportation orders were up 6.1 percent, but that reflected the 28.7 percent jump in demand for commercial airliners and a 9.9 percent rise in orders for military aircraft. Orders for autos were down 1.4 percent last month.
Outside of transportation, orders fell by 0.5 percent, reflecting weakness in a number of other categories. That was the second straight drop in orders excluding transportation.
Orders for non-defense capital goods excluding aircraft, a category that is considered a good proxy for business investment, fell by 0.7 percent last week following an even bigger 1.5 percent decline in May.
Other sectors showing weakness were primary metals, including steel, which dropped by 3.6 percent and computers and electronic products, down 4.6 percent.