New Home Sales Recover (Somewhat) in August


Sales of new homes recovered last month in a sign that the housing recovery hasn't been derailed by higher mortgage rates.

The Commerce Department reported this morning that new home sales were at a seasonally adjusted annual rate of 421,000 in August, 7.9% higher than July and 12.6% above the same month last year.

For reasons that should be obvious from the chart above, analysts and commentators were concerned after new home sales fell by 14% on a sequential basis in July. Most believed higher mortgage rates were to blame, as the rate on a 30-year fixed-rate mortgage shot up from less than 3.5% to roughly 4.5% since the beginning of May.

Fortunately, recent data suggests that there's reason to be optimistic that this isn't the case -- or, at least, that mortgage rates aren't having as potent an impact as previously believed.

Earlier this week, the National Association of Realtors said that existing home sales climbed in August to their highest level in six and a half years. As its chief economist Lawrence Yun noted, "Rising mortgage interest rates pushed more buyers to close deals."

In addition, two of the nation's leading homebuilders both reported yesterday that deliveries surged in the most recent quarter. Completed sales at Lennar , the third largest domestic homebuilder by units sold, were up by 37% on a year-over-year basis, and KB Home , the fifth largest builder, reported an improvement of 6.1% -- though both its new-order volume and backlog fell over the same time period.

The one area where we are seeing a marked decline is in the mortgage market. At a recent industry conference, the chief executive officer of BB&T acknowledged that mortgage volumes at the regional lender are likely to be down by 12%-14% in the current quarter. At the same gathering, the chief financial officer of JPMorgan Chase predicted a 35% decline.

That being said, the desire to buy and own a home remains a central tenet of American consumerism. As the head of PNC Financial recently observed, "Buying a home is going to continue to be the single most financial -- single most important financial transaction that the vast majority of our retail clients are ever going to entertain during the course of their life."

Nobody said that the housing recovery would be smooth, but this certainly offers hope that it will be ongoing.

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