WASHINGTON (Reuters) – Sales of new single-family homes in the United States peaked at almost 13 years in June, as the housing market outperforms the overall economy amid low interest rates and migration from downtown urban to low-density areas due to the COVID -19 pandemic.
FILE PHOTO: A new house under construction is seen in Los Angeles, California, USA, July 30, 2018. REUTERS / Lucy Nicholson
Friday’s upbeat Commerce Department report followed this month’s data showing a surge in homebuilder confidence in July, and an acceleration in homebuilding and pre-owned home sales in June.
The coronavirus crisis has led companies to allow employees to work from home. The emergence of home offices and schooling has fueled demand for spacious homes in small metropolitan areas, rural markets, and large metropolitan suburbs. The strength of the real estate market could help underpin the retail sector as homeowners buy furniture, garden equipment and other supplies.
“The house has a strong immune system,” said Michelle Meyer, chief economist at Bank of America Securities in New York. “The commotion disproportionately impacted the low-income population who are less likely to be homeowners.”
New home sales increased 13.8% at a seasonally adjusted annual rate of 776,000 units last month, the highest level since July 2007. The May sales pace was revised upward to 682,000 units from the 676,000 units previously reported.
New home sales have made up for the losses suffered when nonessential businesses closed in mid-March to curb the spread of respiratory illness. New home sales are counted toward the signing of a contract, making them a leading indicator of the property market.
Economists surveyed by Reuters had forecast new home sales, which account for about 14% of property market sales, increasing 4% at a rate of 700,000 units in June. New home sales accelerated 6.9% from a year ago in June.
But a resurgence of new COVID-19 infections, which has forced some authorities in the affected southern and western regions to close deals again or pause the reopening, could slow the momentum of the real estate market.
Furthermore, the recovery in the labor market appears to have stalled, and the number of Americans claiming unemployment benefits rose last week for the first time in nearly four months. The staggering 31.8 million people were receiving unemployment checks in early July.
The loss of jobs has disproportionately affected low-wage workers, which could explain why the housing market is so much better than other sectors of the economy, which went into recession in February.
HISTORICALLY LOW MORTGAGE
Cases of coronavirus skyrocketing are clouding commercial activity, although production is stabilizing. A separate report on Friday from data firm IHS Markit showed that its composite US PMI production index, which tracks the manufacturing and service sectors, rose to a reading of 50.0 this month from 47.9 in June. The increase ended with five consecutive monthly falls.
A reading above 50 indicates growth in private sector production. IHS Markit said some service providers were struggling with the reintroduction of blocking measures. The composite new order index for the survey fell to a reading of 49.5 this month from 49.9 in June.
Stocks on Wall Street were trading lower as tensions and fears between the United States and China over mounting COVID-19 cases weighed on investor sentiment, erasing all gains for the benchmark S&P 500 index at so far this week. The dollar slipped against a basket of coins. US Treasury prices fell.
Still, housing fundamentals, which make up just over 3% of the economy, remain favorable. The 30-year fixed mortgage rate averages 3.01%, close to a minimum of 49 years, according to data from the mortgage financing agency Freddie Mac. There are more new buyers in the market, with an average age of 47 years.
“This demographic is less likely to have been affected by unemployment, will be more financially secure, and will have a better credit history compared to younger members of the population who are more likely to work at lower wages in retail. and hospitality, “said James Knightley, chief international economist at ING in New York.
“Older home buyers are also more likely to look for an investment property or a vacation home.”
In June, new home sales soared 89.7% in the Northeast and jumped 18% in the West. They increased 7.2% in the South, which represents the majority of transactions, and advanced 10.5% in the Midwest. The median price of new housing increased 5.6% to $ 329,2000 in June from a year ago. New home sales last month focused on the $ 200,000 to $ 400,000 price range.
There were 307,000 new homes on the market in June, down from 311,000 in May. At the pace of sales in June, it would take 4.7 months to settle the supply of housing on the market, compared to 5.5 months in May. More than 60% of homes sold last month were under construction or had not yet been built.
Lucia Mutikani’s report; Editing by Jonathan Oatis and Andrea Ricci