WASHINGTON - U.S. new-home sales unexpectedly rose 0.2 percent last month to 1.226 million at an annual rate, the third-highest ever, as hiring improved and borrowing costs fell.
Sales of single-family homes rose from a 1.224 million rate in September that was higher than first reported, the Commerce Department said in Washington. The median price jumped to $221,800 from $203,300 in September and is up 14 percent from a year ago.
The United States gained the most jobs in seven months during October, and mortgage rates remain within a percentage point of an all-time low. Sales of new and existing homes will reach a record this year before higher borrowing costs start to reduce demand in 2005, according to a forecast from the National Association of Realtors.
"We are still seeing extremely strong traffic and demand," said Alan Levan, chief executive of Levitt Corp., a homebuilder based in Fort Lauderdale, Fla. "This is one of the best housing markets we've seen in a very long time."
Economists forecast sales of 1.2 million at an annual rate in October after a previously reported 1.206 million for September.
"The economy is going to continue to improve and the Fed will continue to raise rates, so those will offset each other a bit," said Van Davis, chief executive officer of Foxtons North America, a Long Branch, N.J.-based real estate brokerage firm. "With higher rates, we do expect to see some cooling in the market next year, but there's nothing to make the bottom fall out because the housing supply is still very low."
Sales rose 13 percent in the West to a record 417,000 at an annual rate and 20 percent in the Northeast to an 85,000 rate. They fell 3.6 percent in the Midwest to a 216,000 rate and 9.1 percent in the South to 508,000 at an annual rate.
The number of new homes for sale rose to 412,000 last month from 408,000 in September. The median number of months that new homes have been for sale declined to 3.8 months from 3.9 months.
Home inventory up
The inventory of new homes for sale rose to a 4.1 months supply from 4 months in September, the Commerce Department said. Some 43 percent of the new homes sold at $250,000 or more last month, and 33 percent sold at $300,000 or more, both records, according to Bloomberg data.
"The combination of low mortgage rates and more hiring is giving the housing market a new lift," said Robert Mellman, an economist with J.P. Morgan Securities Inc. in New York.
New-home sales are considered a leading indicator of housing demand because they are recorded when a contract is written. Existing-home sales are recorded when the transaction closes.
Sales of previously owned homes fell 0.1 percent in October to 6.75 million single-family houses at an annual rate from 6.76 million in September, the National Association of Realtors said Tuesday. The pace was a record 6.92 million in June. Sales of previously owned homes account for 85 percent of the U.S. residential real estate market.
The average rate on a 30-year mortgage fell to 5.72 percent in October from 5.76 percent in September, according to Freddie Mac, the second-biggest buyer of U.S. mortgages. The rate, which fell to an all-time low 5.21 percent last year, decreased to 5.72 percent this week from 5.74 percent the previous week, the second straight decline, Freddie Mac said yesterday.
Housing starts surged 6.4 percent in October to a high for the year, a Nov. 17 government report showed. Builders broke ground on 2.027 million residential units at an annual rate.
Mortgage rates, which are tied to the yields on long-term securities such as 10-year Treasury notes, have been held down by concerns over slow hiring at mid-year and rising oil prices, which some economists said would slow U.S. economic growth.
Economists say mortgage rates and other long-term borrowing costs may also start to rise, helping cool housing demand. On Nov. 5, the National Association of Realtors forecast 2005 sales of new and existing homes at 7.38 million, down from a projected record of 7.72 million this year.
"The purchase market has remained strong because buyers want to get into the market before rates go up," said Bob Moulton, president of Manhasset, N.Y.-based Americana Mortgage Group Inc., in an interview. "People have had a sense of urgency, because there's a feeling that rates will rise."
Prices versus demand
Still, the surge in prices last month suggests that home prices may be starting to outstrip demand in some markets, and demand may start to falter as higher borrowing costs make homes less affordable, said economist Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.
"Mortgage rates will determine the shape of the housing market in 2005," Naroff said. "The Fed will take this report to heart and will likely raise rates in December and probably many more meetings going forward."
U.S. mortgage applications declined last week amid fewer home purchases and refinancings, a private group's survey found. The Mortgage Bankers Association's applications index decreased 5.7 percent, while its gauge of refinancing declined 8.3 percent.