New home sales tumble from near 9-1/2-year high

May 23, 2017 10:11 AM

New U.S. single-family home sales tumbled from near a 9-1/2-year high in April, but the housing recovery likely remains intact amid a tightening labor market. 

The Commerce Department said on Tuesday new home sales declined 11.4% to a seasonally adjusted annual rate of 569,00 units last month. March's sales pace was revised up to 642,000 units, which was the highest level since October 2007.

Economists polled by Reuters had forecast new home sales, which account for 9.8% of overall home sales, decreasing 1.5 percent to a pace of 610,000 units last month from the previously reported rate of 621,000 units. 

New home sales, which are derived from building permits, are volatile on a month-to-month basis. Sales increased 0.5% on a year-on-year basis last month. April's sales drop came after three straight months of increases.

Shrinking labor market slack, marked by a 4.4% unemployment rate, is improving employment opportunities for young Americans, helping to underpin demand for housing.

The housing market also continues to be supported by historically low mortgage rates, with the 30-year fixed mortgage rate hovering just above 4.0%. Luxury homebuilder Toll Brothers Inc (TOL.N) on Tuesday reported a 40 percent rise in quarterly profit, boosted by an increase in home sales.

A survey last week showed homebuilder sentiment rising in May, with builders upbeat about sales over the next six months as well as current sales conditions. 

But rising building material costs, as well as shortages of a lot and labor, have left builders struggling to meet demand, keeping house prices elevated. A report last week showed homebuilding fell for a second straight month in April, hitting its lowest level in five months.

U.S. stocks further trimmed gains after the data on Tuesday while prices of U.S. government debt were mostly trading higher. The U.S. dollar .DXY was slightly firmer against a basket of currencies. The PHLX housing index .HGX slipped 0.1 percent, with shares in the nation's largest homebuilder, D.R. Horton (DHI.N), falling 0.1 percent. 

In April, new single-family homes sales fell 7.5% in the Northeast region. Sales plunged 26.3% in the West to their lowest level since October 2015. They fell 4.0% in the South and declined 13.1% in the Midwest.

The inventory of new homes on the market increased 1.5% to 268,000 units last month, the highest level since July 2009. Still, new housing stock remains less than half of what it was at its peak during the housing boom in 2006. 

At April's sales pace it would take 5.7 months to clear the supply of houses on the market, up from 4.9 months in March.

A six-month supply is viewed as a healthy balance between supply and demand.

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