Housing Still Lacks First-Time Buyers Despite Low Rates

Investor's Business Daily

July sales of new single-family homes fell 2.4%, their second straight decline and the lowest level since March, the Commerce Department said Monday, as first-time buyers still accounted for a relatively small share.

New-home sales fell to an annual rate of 412,000 units, below forecasts for an uptick to 425,000, even with upward revisions to prior months.

"The numbers bucked the trend of other housing indicators in July, which uniformly pointed upwards," said Sal Guatieri, senior economist at BMO Capital Markets, referring in part to upticks in existing-home sales and housing starts.

"New-home sales are not even half their long-term norm when you account for population growth," he said. "The new-home market is definitely much weaker than the resale market.

July's slowdown in new-home sales occurred even as mortgage rates were at the lowest levels in more than a year and price gains cooled. The median sales price rose 2.9% vs. a year earlier, down from 7.8% in June and double-digit gains in much of 2013.

"The issue is lack of available mortgage credit for first-time buyers," said Jay McCanless, an analyst with Sterne Agee.

A survey from Campbell/Inside Mortgage Finance indicated July's first-time buyer share was 37.2%, the fifth straight monthly gain. Investors' share of home buys continued to fall, to 16% in July.

But first-time buyers have historically made up 40% to 45% of buyers, McCanless noted.

New-home sales make up about 10% of home purchases in the U.S. but have an outsized economic impact — from construction jobs and demand for materials to big-ticket items such as appliances.

"Certainly it was a far cry from what some economists were looking for to justify 3% to 4% GDP growth in the second half of the year," said Lindsey Piegza, chief economist with Sterne Agee.

Noting that existing-home sales have been rising for a couple of months, she said new-home sales weakness "sets the tone for an uneven housing market overall.

But the number of new homes for sale at the end of July rose to 205,000, representing six months of supply at the current sales rate. That indicates a balanced market.

Single-family new-home starts rose 8.3% in July to a seasonally adjusted annual rate of 656,000 units, the Commerce Department said earlier. But that's still way below the historical norm.

July new-home sales were down vs. June and a year earlier in all regions except for the South, which posted a 33.2% gain from July 2013.

Sales plunged 30.8% in the Northeast vs. June, according to Commerce. Analyst Megan McGrath of MKM Partners isn't sure that steep falloff jibes with the anecdotal evidence.

She says estimates on a three-month rolling average suggest summer is "slower than it was in the winter," even on a seasonally adjusted basis.

"It's not what we're hearing from actual homebuilders," she said. "I take this data with a grain of salt.

McCanless is more bullish on builders active in active-adult and move-up homes as well as luxury housing, such as PulteGroup (PHM), Meritage (MTH), Ryland (MTH) and WCI Communities (WCIC).

Toll Bros. (TOL) targets luxury buyers but is "fully valued," he said, as is Lennar (LEN).

Most builder stocks fell modestly Monday even as the S&P 500 hit a new record high.

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