Sales of new U.S. homes dropped more than forecast in December as cold weather helped put a chill on an industry at the end of its best year since 2008.
Purchases decreased 7% to a 414,000 annualized pace, lower than any estimate of economists surveyed by Bloomberg, Commerce Department figures showed today in Washington. For all of 2013, demand jumped 16.4% to 428,000.
The coldest December in four years discouraged sales at the same time affordability weakened as prices and interest rates climbed. While the weather has worsened this month, builders such as KB Home have been optimistic about the outlook for the residential market, which will need to expand to meet the needs of a growing population.
“I wouldn’t panic, but it’s obviously not a good report,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York, the best forecaster of new-home sales over the past two years, according to data compiled by Bloomberg. “I don’t feel like this is the beginning of the end of the housing recovery by any stretch.”
The slackening shows the challenges faced by Federal Reserve officials as they trim stimulus aimed at boosting the expansion. Policy makers, who begin a two-day meeting tomorrow, have said they’ll take measured steps in reducing monthly bond purchases.
Borrowing costs for prospective buyers have climbed since U.S. central bankers last year signaled they would pare purchases of mortgage-backed securities and other bonds, a process that began this month. The Fed probably will stick to its plan to gradually reduce asset purchases, tapering by $10 billion over the next six meetings before announcing an end to the program no later than December, according to a Bloomberg survey of economists.
“We know they are concerned about interest-rate sensitive indicators of the economy,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Now that they have started, the problem is how do they explain tapering the original $85 billion to $75 or $65 billion is not really tightening?”
Stocks fell for a third day, extending losses following the worst week since 2012 for benchmark indexes. The Standard & Poor’s 500 Index declined 0.8% to 1,776.55 at 12:18 p.m. in New York.
The median forecast of 75 economists surveyed by Bloomberg called for 455,000 new-home sales last month. Estimates ranged from 420,000 to 475,000. October and November purchases were weaker than initially reported.