Money and Main Street

Surprise drop in new home sales

Sales of newly constructed homes fell 3.6% in September, after five months of gains, according to a government report.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Ben Rooney, CNNMoney.com staff reporter

Most (and least) affordable cities to buy a house
Here are the 5 metro areas where the average American family can afford to purchase a median-priced home -- and the 5 where they can't.
Real Estate:
Your local forecast
381 markets tracked
1. Select your state
2. Select your city/market
Map
Where the $8,000 tax credit is going
Through August, 315,000 first-time homebuyers took advantage of a Recovery Act tax credit of up to $8,000.
Mortgage Rates
30 yr fixed 4.12%
15 yr fixed 3.14%
5/1 ARM 3.25%
30 yr refi 4.17%
15 yr refi 3.21%

Find personalized rates:
 

Rates provided by Bankrate.com.

NEW YORK (CNNMoney.com) -- Sales of newly built homes fell unexpectedly in September after rising for five straight months, according to government figures released Wednesday.

The Commerce Department said new home sales fell 3.6% to a seasonally-adjusted annual rate of 402,000 last month, from a downwardly revised rate of 417,000 in August. It was the first time new home sales declined since March.

Economists surveyed by Briefing.com had expected September new home sales to rise to a rate of 440,000 units.

"We're attributing most of the decline to the potential expiration of the new home-buyer tax credit," said Adam York, an economist at Wells Fargo. "It's getting harder to buy a house and no one wants to close after the credit expires," he added.

In addition to relatively low prices and attractive mortgage rates, the housing market has been supported in recent months by a temporary government tax credit for first-time homebuyers.

The tax break. The credit can be worth up to $8,000 for eligible buyers,but is set to expire at the end of November. Congress is expected to extend the credit, but the terms are still being debated.

Most economists believe that the drop in September's new home sales was driven primarily by the tax credit's timetable -- but not all of them agree.

Mark Zandi, chief economist at Moody's Economy.com, contends that first-time homebuyers are more likely to buy an existing home than a new home, which suggests that the tax credit is less of an issue for new home sales.

Zandi attributed the increase in new home sales over the past five months to low interest rates and more aggressive FHA lending. And he adds that these recent increases haven't been spectacular. "All we can say is the new home market is stabilized."

Foreclosures still loom. Wednesday's report highlighted concerns about the long-term outlook for the housing market, which remains challenged by rising unemployment and a glut of foreclosed properties on the market.

A separate report showed Wednesday that applications for home loans, considered a leading indicator of sales, fell for the third week in a row last week.

The Commerce Department report showed the median sales price jumped to $204,800 in September from $195,200 the month before. The average sales price rose to $282,600.

The price increase echoed an industry report released Tuesday that showed home prices in 20 major markets rose for the fourth month in a row during August.

Meanwhile, the estimated number of new homes for sale at the end of last month fell to 251,000 units on a seasonally adjusted basis. That's down from 262,000 unsold homes last month and was the lowest level since November 1982.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the drop in housing inventory means the market is moving towards a better balance of supply and demand. "But the tax credit story is the key element right now," he added.

He said that the credit's looming expiration will probably mean that home sales will fall again in October and, depending upon where the legislation stands, in November as well.

At the current sales pace, it would take 7.5 months to sell through existing inventory, according to the report. That's up from the previous month, when the there was about 7.3 months of inventory on the market.

-- CNN senior writer Jeanne Sahadi contributed to this report.  To top of page

Find mortgage rates in your area


Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
These 10 food trends could dominate 2015 So long, kale. Here's what's expected to shake up the food industry next year. More
Beyond Russia: Geopolitical hot spots in 2015 Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More
These 20 antique guns could fetch big bucks Morphy Auctions in Pennsylvania is putting nearly 1,000 old guns on the block. Here are just a few. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.