U.S. New Home Sales Jump 9.6%, Most in Four Years (Update2)

By Shobhana Chandra
Aug. 26 (Bloomberg) -- Purchases of new homes in the U.S.
jumped more than forecast in July, adding to signs that the economy is rebounding from the worst recession since the 1930s.
Sales increased 9.6 percent, the most since February 2005, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in 16 years.
The gain in sales, together with rising purchases of existing homes and steadying prices, indicate the housing slump may be ending as Federal Reserve efforts to thaw credit and the Obama administration’s first-time homebuyer incentives lift demand. Job losses and mounting foreclosures mean any rebound in construction may be limited.
"We’re seeing a clear pickup in housing activity," said Michael Moran, chief economist at Daiwa Securities America Inc.
in New York. "The correction phase is essentially over and we expect continued improvement, though not a vigorous pickup."
Homebuilders’ stocks surged after the report, with the Standard & Poor’s Supercomposite Homebuilding Index gaining 3.7 percent as of 10:23 a.m. in New York. The broader S&P 500 Stock Index was up 0.4 percent at 1,031.95. Benchmark 10-year Treasury yields were little changed, at 3.45 percent.

Economists’ Forecasts

Economists forecast new home sales would rise to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. Estimates ranged from 365,000 to 420,000.
Last month’s pace was the highest in 10 months. The Commerce Department revised June’s reading up to a 395,000 rate from a previously reported 384,000.
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down
35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Home sales are responding to policy efforts such as an $8,000 tax credit for first-time buyers, the Fed keeping its benchmark interest rate near zero and central bank purchases of mortgage-backed securities to free up funding for housing loans.

Bernanke Renomination

Chairman Ben S. Bernanke, who led the biggest expansion of the Fed’s power in its 95-year history in order to stem the economic slide, was nominated to a second term as chairman yesterday by President Barack Obama. In a speech last week, Bernanke had said that "economic activity appears to be leveling out."
"The prospects for a return to growth in the near term appear good," Bernanke said on Aug. 21 in Jackson Hole, Wyoming. The recovery will be "relatively slow at first."
Risks to a sustained rebound include a jobless rate that’s forecast to reach 10 percent by early 2010 and a surge in mortgage foreclosures. By driving down prices, distressed properties compete with new houses, hurting construction.
Even so, the industry’s crisis is abating. The S&P/Case- Shiller national home-price index, released yesterday, rose 2.9 percent in the second quarter from the prior three months, the first increase since 2006 and the biggest in almost four years.

Existing Homes

Existing home sales advanced in July to the highest level in almost two years, boosted by lower prices, buyer incentives and near-record-low borrowing costs, data from the National Association of Realtors showed last week.
While accounting for only about 7 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.
"We’re likely not to experience a lot of downside from here," Pulte Homes Inc. Chief Executive Officer Richard Dugas said last week. It could remain a "tough environment for a while," he added.
Pulte this month completed its purchase of Centex Corp., the first large combination of publicly traded homebuilders since the housing recession began.