New home sales hit 'disappointing bump' in July

New home sales dropped to a seven-month low in July, falling nearly 10 percent over the month and throwing the future of the U.S. housing market into question.

Sales of newly built homes were down 9.4 percent on the month and 8.9 percent on the year, according to a report published Wednesday by the Census Bureau. Weakness was most prominent in the Northeast, where sales fell 23.8 percent over the month and 13.5 percent on the year. Sales in the geographic South, meanwhile, were down 4.1 percent from June and 11.7 percent from July 2016.

"Sales of new homes fell year-over-year in July, the first annual decline in more than a year and a disappointing bump in the road in what has otherwise been a good, not great, year for new home sales," Aaron Terrazas, a senior economist at real estate hub Zillow, wrote in a research note Wednesday. "The decline was driven by annual drops in home sales activity in every region except the booming West."

Terrazas warned, however, that the sales data should be "read with caution" because of the possibility of hefty month-to-month revisions later. June's sales total, for example, was revised up by 20,000 homes between the information's initial release and Wednesday's report.

The overall trend in new home sales, he said, is still pointing up.

RELATED: Check out the must-read real estate books on Amazon:

"Looking at construction activity, new home starts have been slowly but steadily rising, reflecting strong overall fundamentals and a sound economy that's in better shape than at any point in the past decade," Terrazas said. "The scars of the housing bust are still fresh in the minds of many homebuilders, so it is not surprising that many are taking a cautious approach to ramping up production."

Indeed, some builders were burned by the sudden evaporation of the housing market last decade, and have been reluctant to boost production to keep up with strong demand. Housing starts, completions and permits in recent months have been lackluster, respectively falling 4.8 percent, 6.2 percent and 4.1 percent in July alone, according to construction data released last week.

Modest progress has been made in recent months to address the nation's inventory dilemma. But prices are still high, especially for entry-level homes in high demand. Only 16 percent of homes sold last month were valued at less than $200,000. Throughout 2016, 17 percent of new home sales fell under that benchmark. And 19 percent of new homes sold in 2015 were for less than $200,000.

With fewer affordable housing options available, there's been some concern that high prices in some areas have effectively priced out lower-income buyers, forcing folks to rent for longer periods of time than they'd otherwise prefer.

"Inventory of new homes for sale has steadily increased over the past year, and while it's clearly not coming online as fast as homebuyers might like, it's probably coming to market as fast as can reasonably be expected given the difficulties and costs involved in securing land, labor, lumber and permits," Terrazas said. "Particularly in light of exceptionally tight inventory of existing homes, the number of new homes hitting the market remains well short of demand – but it is slowly catching up."

Still, with fewer affordable housing options available, sales in many parts of the country are being finalized not long after being put on the market, leaving would-be homebuyers with little time to make their move.

"While the supply of homes for sale ticked up or held steady throughout the country, the median time between when a new home is completed and sold remains at the record low of 2.9 months," Danielle Hale, a chief economist at realtor.com, said in a statement Wednesday. "This quick pace of selling suggests that buyer demand remains strong and that many house hunters will still have a tough time finding the right place at the right price."

Copyright 2017 U.S. News & World Report

More from U.S. News:
Study: Happiness is a U and Middle Age is Depressing
Immigration Court Backlog Hangs Over Trump's Reform Push
Stocks Slide as Trump Threatens NAFTA, Government Shutdown