Rising Mortgage Rates Hit US New Home Sales

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Higher mortgage interest rates resulted in a sharp drop in sales of new homes in the U.S. in July, according to data released today.

Sales of newly built single-family homes declined 13.4 percent in month to a seasonally adjusted annual rate of 394,000 units, the Department of Housing and Urban Development and the U.S. Census Bureau reported. That compared to a previously-announced seasonally adjusted annual rate of 497,000 in June, and fell below analysts' estimates of 487,000. June's sales number was revised down from 497,000 to 455,000.

But the National Association of Home Builders characterized the drop as a "temporary" blip rather than the start of a sustained decline. Sales were still 6.8 percent higher than a year ago.

"The drop-off in sales in July is in part a reflection of buyers' reaction to the recent uptick in mortgage rates as people reassess their budgets to determine how much house they can afford," said NAHB chairman Rick Judson. N.C. "Consumers just need a little time to adjust to the new parameters of the market."

On the upside, the median price for a new home sale rose to $257,200, up from $237,400 in July of 2012. The inventory of new homes increased by 4.3 percent from June to July. Earlier this week the National Association of Realtors reported a 6.5 percent increase in existing home sales from June to July.

The latest numbers quickly prompted debate among analysts.

"It is certainly a warning signal that conditions in the housing market are nowhere near as rosy as homebuilders, real-estate agents, and their enablers in the media are so keen to represent," economist Joshua Shapiro of MFR Inc. said in a client note quoted in the Wall Street Journal.

But economist Millan Mulraine of TD Securities said the "overall housing-affordability conditions remaining quite supportive, [and] we continue to expect the housing recovery to remain largely intact."

Some analysts are speculating that the news might slow the resolve of the Federal Reserve to taper its support for markets

"The higher mortgage rates are having an impact on the housing market," said Scott Brown, chief economist with Raymond James told Reuters. "That makes tapering (bond purchases) somewhat less likely."