WASHINGTON – Americans cut back sharply in July on their purchases of new homes, a sign that higher mortgage rates may slow the housing recovery.
U.S. sales of newly built homes dropped 13.4 percent to a seasonally adjusted annual rate of 394,000, the Commerce Department said Friday. Thats the lowest in nine months. And sales fell from a rate of 455,000 in June, which was revised down from a previously reported 497,000.
The housing rebound that began last year has helped drive economic growth and create more construction jobs. But mortgage rates have climbed a full percentage point since May. The increase has begun to steal some momentum from the market.
Sales of new homes are still up 7 percent in the 12 months ending in July. Yet the annual pace remains well below the 700,000 that is consistent with a healthy market.
Julys drop may mark an uh-oh kind of moment for the housing recovery, said Mark Vitner, an economist at Wells Fargo Securities.
Homebuilder stocks declined sharply Friday, even as overall market indexes rose. Shares of Toll Bros. Inc., D.R. Horton Inc. and Lennar Corp. – three of the nations largest builders – all fell more than 3 percent in afternoon trading.
And major homebuilders shares have been dropping steadily since late May. The slide began after Federal Reserve Chairman Ben Bernanke first signaled that the Fed might reduce its bond purchases later this year.
The bond purchases have helped keep mortgage rates and other borrowing costs low, market analysts say.
The average rate on 30-year mortgages reached 4.58 percent this week, according to Freddie Mac. Thats up from 3.35 percent in early May and the highest in two years.
The effect on would-be buyers finances is significant.
Take someone who locked in the early May rate on a $200,000 mortgage. They would have a monthly payment of around $875. But the same mortgage at last weeks average rate would cost $1,025 a month.
The difference adds up to $150 more each month – or $54,000 over the lifetime of a 30-year loan. The monthly figures dont include taxes, insurance or initial down payments.