WASHINGTON -- Americans bought fewer new homes in June after sales jumped to a two-year high in May. The steep decline suggests a weaker job market and slower growth could make the housing recovery uneven.
The Commerce Department said Wednesday that sales of new homes fell 8.4 percent last month from May to a seasonally adjusted annual rate of 350,000. That's the biggest drop since February 2011.
Sales in the Northeast plunged 60 percent in June to the lowest level since November.'
Nationwide, sales in May and April were revised much higher. June's sales pace is 15.1 percent higher than the same month last year. But sales remain well below the 700,000 annual rate that economists equate with healthy markets.
"While a housing recovery is under way ... fits and starts are to be expected and clearly this summer is one of the 'fits,' " Dan Greenhaus, chief economic strategist at BTIG LLC, said in a note to clients.
"With all the Fortune 500 companies located here there are quite a lot of high-salaried individuals," said Shaun Bond, a professor of finance and real estate at the University of Cincinnati. "And the Midwest housing market has always been more affordable; there are fewer constraints on growth."
With median income at more than $71,000 a year, workers earn about 10 percent more than the national median. Meanwhile, median home prices have never exceeded $148,000, according to the NAHB.
"We don't have the kind of volatility in income or home prices that cities with more concentrated industries have," said Bond.
In the 20th century, Akron's economy grew in lockstep with the auto industry.
"It was the big rubber capital," said University of Cincinnati professor of finance and real estate Shaun Bond. Tens of thousands of local area residents went to work each day in the plants of Firestone, Goodyear, Goodrich and other tire manufacturers.
With factory jobs harder to come by, the Akron metro area has become a slow growth zone. The population has only increased by less than 7 percent since 1990, a period when the U.S. population soared by about 26 percent. Even favorite son LeBron James split town for fancy Miami.
And home prices are depressed, down 22 percent from their 2007 peak, according to NAHB. With family income just above the national median and such beaten down prices, most families can easily afford to buy a place.
Syracuse University, with its 20,000 students and 1,500 faculty members, helps keep the area's economy humming. Teachers, nurses and bank clerks far outnumber factory workers these days, according to the non-profit Syracuse Economic Development Corporation.
That has helped push the area's median income to a level that is slightly higher than the national average.
All of those jobs are not doing much to attract new residents, however. In fact, the metro area has seen less than a 2 percent increase in population since 2000, compared with nearly 10 percent nationally. As a result, there's very little competition for housing.
Those factors combined make buying a home in Syracuse very affordable. The current median home price of $106,000 is only 60 percent higher than the annual median income of a typical family.
Ogden's population has been rapidly expanding, thanks to the large families of Mormons that reside here, according to Jaren Pope, an economics professor at Brigham Young University.
Pro-business policies have attracted many private employers, such as FJ Management, an oil services company, Convergys, a business consultancy, and Autoliv, an automotive safety systems company, all of which are based in Ogden. And there's also the IRS, which runs a big facility with 5,000 workers.
A high growth rate, in both the population and the economy, isn't usually a recipe for affordable home prices. Indeed, home prices in Ogden slightly exceed the national median.
However, Utah's pro-business policies also extend to real estate developers. And, as a result, home building can be done much more economically.
The biggest problem in Ogden is finding land to build on since the town runs up against the Wasatch Mountains, said Pope.
Still, with the median home price at $166,000 and incomes high here, Ogden is one of the most affordable of all western markets.
A world away from the Big Apple -- one of the most expensive housing markets in the nation -- Buffalo is the most affordable major metro area to buy a home in the state of New York.
Part of the reason is that demand for housing is very low. The area's population has shrunk by about 5 percent since 1990 as its Rust-Belt manufacturers either closed shop or laid off workers.
As a result, demand for housing is very low -- and home prices reflect that. The median home price in Buffalo was only $94,000 for homes sold during the first three months of 2012, according to the NAHB. That's far below the national median of $162,000.
Fortunately for home buyers, incomes aren't as depressed. The median income here is at just about the national level, making it very affordable to buy a home.
As in many once-booming Midwestern cities, Grand Rapids was built up during an era of prosperity and high population growth. Now it's left with a large inventory of fine, old houses that are weighing on home prices.
In addition, several local non-profits are working to save area neighborhoods by renovating older homes and renting them out or reselling them, said Kara Wood, the city's director of economic development.
With population growth slowing over the past few decades -- the metro-area population grew at about half the national rate over the past 10 years -- there's more than enough homes to meet buyer demand.
Meanwhile, the city's economic base, which once relied heavily on the furniture-making industry, has become more diversified. Health care is now a driving force in the local economy, said Wood.
And there are plenty of good-paying jobs. Spectrum Health, which runs several hospitals in the area, employs more than 16,000 local residents, plus 1,500 physicians.
Modesto would make the perfect poster child for California's housing bust.
Construction and home prices both boomed prior to the 2006 peak, as buyers sought homes that were cheaper than those on the coast, according to Daren Blomquist, a spokesman for RealtyTrac.
"People bought there even though they worked far away, closer to the coast," he said. "They were willing to make that commute to get lower prices."
Much to those buyers' dismay, once the bubble burst the prices kept falling. Home prices in Modesto have sunk 67 percent from their 2005 peak to the current median of $127,000, almost $40,000 below the national level.
Foreclosures still plague Modesto. The metro area had the second highest foreclosure rate in the nation during the first quarter of 2102, with foreclosure paperwork filed on one out of every 60 homes, according to Blomquist.
Meanwhile, the unemployment rate stood at a very high 17.4 percent in March, more than twice the national rate. Families with working members, however, can easily afford the beaten down home prices in the area.
Located on an interstate highway between Tampa and Orlando, Lakeland's residents are used to people just passing through. But those who decide to stay don't find it very difficult to afford a place.
While both home prices and incomes have been hit hard here over the past several years, the decline in home values has far surpassed falling wages, said Ken H. Johnson, professor of real estate at Florida International University.
Home prices have fallen 58 percent since the housing bubble burst, to a median of $85,000. Taxes are also low. With today's low interest rates, a family who buys a house at the median price and puts 20 percent down would have a monthly payment of under $400, including taxes.
Meanwhile, the jobs picture is improving. Long a pit stop for travelers, Lakeland has recently become a destination, thanks to the opening of the Legoland theme park in October.
Legoland now employs 1,000 people. And a water park just opened this month, which should create even more jobs. That should help to further improve the unemployment rate, which fell to 9.5 percent in March, down from 11.3 percent the year before.
Dayton is shrinking -- or at least its population is.
The metro area lost about 1 percent of it residents over the past 11 years as businesses, like NCR Corp., moved out of town and others cut staff.
While that hasn't necessarily been a good thing for the local economy, it has kept homes extremely affordable. Since there's such an ample supply on the market, home prices have come down significantly. The median home price in Dayton is currently $81,000, about half the national level, according to the National Association of Home Builders.
Luckily, the employment picture is improving, too. The unemployment rate fell 1.2 percentage points over the past year to 8.2 percent, close to the national rate.
From its mainly manufacturing roots, the state's capital has greatly diversified, attracting employers in the health care, pharmaceutical and retail industries. Even tourism has become a big industry here, as sporting events like the famed Indianapolis 500 and the NCAA basketball championships draw crowds each year.
All of that has helped Indianapolis' population bring in a median income that is on par with the nation's as a whole. Housing, however, is much cheaper than the national average, making it a lot more affordable for local residents to buy.
Helping to keep prices down is the fact that there is so much room to grow. "There's an ample amount of land available for housing development any time there's a rise in demand for housing," said Kyle Anderson, a professor of economics at the Kelley School of Business of Indiana University.
Sales of previously occupied homes fell in June to their lowest level since October. But sales were up 4.5 percent from a year ago, evidence that a modest recovery is still under way.
New Homes in Short Supply
One trend that is holding back sales has been low inventories. There were 144,000 new homes for sale in June, just above May's 143,000 -- the lowest on records dating back to 1963. At the current sales pace, it would take 4.9 months to exhaust the June supply. A six-month supply is generally considered healthy by economists.
The reduced inventory is pushing up overall home prices, which have turned up in recent months. The median price of a new home, however, fell 1.9 percent in June from May to $232,600.
Where Home Prices Are Rising Fastest
U.S. New Home Sales Fall to 5-Month Low
The tide is already starting to turn in some U.S. housing markets, with home prices in these 10 metro areas expected to climb anywhere between 10 percent and 21 percent by the end of next year, according to Fiserv.
Median home price: $248,000
Drop since market peak: 17.1 percent
Forecast gain through 2013: 10 percent
Santa Fe not only has cleanest air in the nation, but it also should see some healthy gains in home prices as well, according to Fiserv.
This state capital in the high (located 7,200-feet above sea level) country of central New Mexico wasn't hit half as hard by the housing bust as some other parts of the nation. Helping to lift prices is Santa Fe's thriving economy.
With a population of just under 200,000, unemployment is at a low 5.5% making it one of the top 10 metro areas for jobs. The city is also attractive for other reasons: It's a center for visual and performing arts, with a major dance company and the famous Santa Fe Opera.
Median home price: $149,000
Drop since market peak: 7.5 percent
Forecast gain through 2013: 10 percent
Lewiston's location on the banks of the Clearwater River, where major oceangoing ships can easily reach the town, has made it an attractive place for manufacturers to set up shop.
And while the production of everything from paper to ammunition still drives much of the economy, it is starting to diversify into other areas, including medical services.
That has helped the town maintain economic stability, and buffer the housing market from the nationwide collapse in home prices, according to Steven Peterson, an economics professor at the University of Idaho.
The median income of $55,600 is less than the national median -- but the cost of living is low as well. Staples like food and utilities cost about a third less here than in high-priced metro areas.
As the national economy recovers, Lewiston's industries, especially the timber companies and shippers, should start adding jobs. Already, at 7.3 percent in March, the area's unemployment rate is nearly a percentage point below the national average. And, since the housing market was not overbuilt, demand for homes should start to push prices up.
Median home price: $176,000
Drop since market peak: 3 percent
Forecast gain through 2013: 10.1 percent
Located on a rolling prairie, 600 miles from any city near its size, Billings' isolated location is the key to its prosperity, said Century 21 real estate broker Mark Dawson.
Residents of the vast surrounding area flock to the city's retail stores, hospitals and its airport. In addition, many of the workers come through Billings on their way to jobs in the oilfields of North Dakota.
Those factors have kept the housing market strong throughout the bust. Home prices in Billings are down just 3 percent from the 2006 peak. As a result, fewer homeowners are underwater on their loans and foreclosures have been a rarity, said Dawson.
Last fall, home sales started picking up and now the one time glut of high-end homes costing more than $400,000, has dried up. With inventory low, home building is starting to percolate. Dawson said the number of homes built by developers grew 112 percent during the first quarter compared with 12 months earlier.
Median home price: $118,000
Drop since market peak: 36.9 percent
Forecast gain through 2013: 11 percent
Boise's housing market has gone through a dramatic rise and fall over the past decade.
Home prices almost doubled in the five years leading up to 2006. But once the bubble burst, prices plunged, according to Fiserv.
Some neighborhoods were flooded with foreclosures and the metro area had one of the higher foreclosure rates in the nation in April, according to RealtyTrac. All of those distressed properties should start to attract bargain hunters, including investors, said Steven Peterson, a professor of economics at the University of Idaho.
There are plenty of reasons for buyers to stay here. Boise has a diverse economy that includes software makers, medical services and agricultural support companies like J.R. Simplot. Chip maker Micron Technology is also based in Boise.
The unemployment is just a tick above the national rate at 8.2 percent and has dropped a full percentage point over the past 12 months.
"The road back to housing market recovery is less steep [in Boise] than in high-cost areas," said Peterson.
Median home price: $211,000
Drop since market peak: 26.3 percent
Forecast gain through 2013: 11.3 percent
Located between Seattle and Portland, this state capital offers both jobs and state-of-the-art health care.
The state government and medical facilities, like Providence St. Peter Hospital and Columbia Capital Medical Center, are among the largest employers in the area, said Thurston County Economic Council executive director Michael Cade. While Lewis McChord, a nearby military base, employs thousands of civilians and supports many of the small businesses in the area.
With the median household income at nearly $75,000, residents are better able to afford home prices here, which are about 50% higher than the rest of the nation.
And they're still rising. Fiserv expects home prices to take off by the fourth quarter and climb by 11.3 percent in 2013.
Median home price: $166,000
Drop since market peak: 21.2 percent
Forecast gain through 2013: 12.4 percent
Like Corvallis, Eugene's comeback is partly being fueled by the fact that it hosts a big university.
The University of Oregon brings a steady supply of students, many of whom stay in the area post-graduation.
However, earnings here are not very high. Household income in the Eugene area is about $53,000, about $13,000 below the national median.
Still, homes are selling -- just not at the high-end of the market, said John Hoops, a former president of the Oregon Association of Realtors and a broker with Windermere Real Estate.
"On inventory under $200,000 we're seeing multiple offers," said Hoops. Sales of properties near the university are especially strong with some of the demand coming from investors who rent out properties to students.
Median home price: $224,000
Drop since market peak: 11.4 percent
Forecast gain through 2013: 13.2 percent
The economic fortunes of the Corvallis area are closely tied to Oregon State University, which not only hires a lot of workers but has also spawned a handful of local businesses.
Recently, the local economy has been on an upswing. The unemployment rate has fallen by nearly one percentage point in the past year to 6.1 percent. And enrollments at the university climbed by 8 percent and 5 percent over 2010 and 2011, respectively, boosting demand for rental units.
That has created an opportunity for real estate investors, who are buying up homes priced below the median level and renting them out to college students, said Jimmy Yang, an associate professor of finance at Oregon State
Supply is limited though, according to Stuart Conser of Conser Realty. Smart growth initiatives aimed at preserving open spaces put limits on development in certain parts of town. With fewer new homes being built, it should put upward pressure on pricing.
Median home price: $105,000
Drop since market peak: 37.4 percent
Forecast gain through 2013: 16.7 percent
Yuma can thank its location for helping it recover from the housing meltdown. The Arizona town sits in a Foreign Trade Zone, where products and materials can be moved between Yuma and Mexico duty-free.
And the nearly constant sunshine also makes it a center for renewable energy development, with companies like First Solar and Abengoa Solar hiring hundreds of workers, according to Julie Engel, director of the Yuma Economic Development Corporation.
Agriculture is another major industry here, especially due to the long growing season.
All that is helping, but the economy is still struggling. The area has one of the nation's highest unemployment rates, nearly 24 percent in March. And median household income of just over $45,000.
A structural problem for the economy is that it's seasonal with agricultural workers often facing months of idle time, according to Moody's Analytics. The workforce also tends to be poorly educated with only 15.9 percent holding a bachelor's degree or higher, according to the Census Bureau.
Yet, home prices are so cheap that the vast majority of families earning the area's median income can afford a home, according to the National Association of Home Builders.
Median home price: $144,000
Drop since market peak: 37.1 percent
Forecast gain through 2013: 20.1 percent
A hot spot among retirees, this small city located just north of the California border is staging a comeback.
"We now have the lowest [housing] inventory in six years and the strongest buyer traffic in seven years," said Colin Mullane, a real estate broker at Full Circle Real Estate in Medford.
Homes are selling at a quicker pace and at higher prices than they did over the past several years, according to the local multiple listing service. Another promising sign: more distressed properties are being sold in short sales rather than going into foreclosure.
One factor could hinder the housing market recovery, however: unemployment. In March, unemployment stood at 11.7 percent, well above the national average.
But a steady influx of retirees should help. According to Mullane, many seniors are drawn to the area for its mild Mediterranean-like climate, excellent medical facilities and reasonable cost of living.
"With no excess inventory of unsold new homes, any sustained recovery in new home sales should quickly translate into firmer prices," Steven Wood, chief economist at Insight Economics, said.
Low inventories are also spurring more building. Builders broke ground last month on the most new homes and apartments in nearly four years. And permits to build single-family homes rose to the highest level since March 2010. Surveys also show that builders are more confident in the market, partly because they are seeing more interest from potential buyers.
The Home-Loan Hang-Up
However, many people are still having difficulty qualifying for home loans or can't afford the larger down payments that are being required by banks. That's likely holding back sales.
Though new homes represent less than 20 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics compiled by the National Association of Home Builders.
Economists expect housing will add to economic growth this year for the first time since 2005. But home construction and remodeling have become such a small part of the economy that the increase will likely have only a modest impact.
Other than housing, the economy has been weakening. Americans have cut their spending at retail stores for three straight months, the longest stretch of cutbacks since the recession. A survey earlier this month found that manufacturing activity contracted in June for the first time in nearly three years.
And hiring is slowing. Employers added an average of only 75,000 jobs a month from April through June. That's much lower than the average of 226,000 a month added in the first three months of this year.
On Friday, the government will issue its first estimate for economic growth in the April-June quarter. Economists have cut back on their forecasts in recent weeks, and now expect growth at an annual rate of only 1.5 percent. That's below the 1.9 percent pace in the first three months of the year.
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