New Home Sales Tumble as Mortgage Rates Rise

A 'Open House' sign stands outside a new home for sale in the D.R. Horton Inc. Cambridge at Southbury development in Oswego, Illinois, U.S., on Tuesday, Aug. 20, 2013. The Commerce Department is scheduled to release new home sales figures on Aug. 23. Photographer: Daniel Acker/Bloomberg via Getty Images
Daniel Acker/Bloomberg via Getty Images

By Jason Lange

WASHINGTON -- Sales of new single-family homes in America fell sharply in July to their lowest level in nine months, casting a shadow over the country's housing recovery.

Sales dropped 13.4 percent to an annual rate of 394,000 units, the Commerce Department said Friday. The government also revised sharply lower its estimate for home sales in June.

While government housing data is often subject to large revisions, the reading was well below expectations. The median forecast in a Reuters poll of analysts was for a 490,000-unit sales pace.

Mortgage rates have surbed since May on bets that the Federal Reserve feels that the U.S. economy has strengthened enough for the central bank to wind down a major stimulus program.

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Most analysts expect the Fed will begin reducing monthly bond purchases in September. The program aims to lower interest rates to make it easier for businesses to expand and take on new workers. The housing market, which has been a major drag on America's economy since the 2007-09 recession, appeared to turn a corner early last year when home prices began to rise.

Last month, the median price for a new home sale rose to $257,200, up from $237,400 in the same month of 2012. Construction of new homes has accelerated during the last year, and the inventory of new homes for sale increased by 4.3 percent in July from June.

At July's sales pace it would take 5.2 months to clear the houses on the market, up from 4.3 months in June. A supply of six months is normally considered as a healthy balance between supply and demand.