Purchases of new homes unexpectedly declined in March for a third month, reflecting the weakest pace of demand in the West since July 2014.
Total sales decreased 1.5% to a 511,000 annualized pace, a Commerce Department report showed Monday. The median forecast in a Bloomberg survey was for a gain to 520,000. In Western states, demand slumped 23.6%.
Purchases rose in two regions last month, indicating uneven demand at the start of the busiest time of the year for builders and real estate agents. While new construction has been showing limited upside, cheap borrowing costs and solid hiring will help ensure residential real estate continues to expand.
“Housing is certainly not booming,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y., said before the report. “Some people may be shut out of the market because lending standards are still tight. There may still be some reluctance to buy versus rent.”
Even so, “through the volatility, the trend is still more up than down, and we expect modest growth in sales,” he said.
Economists’ estimates for new-home sales ranged from 488,000 to 540,000. February purchases were revised to 519,000 from 512,000. The monthly data are generally volatile, one reason economists prefer to look at longer term trends.
The report said there was 90% confidence the change in sales last month ranged from a 13.5% drop to a 16.5% increase.
Sales in the West declined to a 107,000 annualized rate in March after surging 21.7% the previous month to 140,000. In the South, purchases climbed 5% to a 314,000 pace in March, the strongest in 13 months. Sales in the Midwest advanced 18.5%, the first gain in three months, and were unchanged in the Northeast.
The median sales price decreased 1.8% from March 2015 to $288,000.
There were 246,000 new houses on the market at the end of March, the most since September 2009. The supply of homes at the current sales rate rose to 5.8 months, the highest since September, from 5.6 months in the prior period.
From a year earlier, purchases increased 5.8% on an unadjusted basis.
New-home sales, which account for less than 10% of the residential market, are tabulated when contracts get signed. They are generally considered a timelier barometer of the residential market than purchases of previously owned dwellings, which are calculated when a contract closes, typically a month or two later.
Borrowing costs are hovering close to a three-year low, helping to bring house purchases within the reach of more Americans. The average rate for a 30-year fixed mortgage was 3.59% last week, down from 3.97% at the start of the year, according to data from Freddie Mac.
The job market is another source of support. Monthly payrolls growth averaged 234,000 in the past year, and the unemployment rate of 5% is near an eight-year low. Still, year-over-year wage gains have been stuck in a 2% to 2.5% range since the economic expansion began in mid-2009.
The market for previously owned homes improved last month, climbing 5.1% to a 5.33 million annualized rate, the National Association of Realtors reported April 20. Prices rose as inventories remained tight.
Even so, the market is getting little boost from first-time buyers, who accounted for 30% of all existing-home purchases, a historically low share, according to the group.
Recent data on home building has been less encouraging, although those figures are volatile month to month. New-home construction slumped in March, reflecting a broad-based retreat, a Commerce Department report showed last week. Home starts fell 8.8% to the weakest annual pace since October. Permits, a proxy for future construction, also unexpectedly dropped.