New - Home Sales Rise, But higher Rates May Slow Growth

Sales of new homes rebounded in August, the Commerce Department said Wednesday, adding to evidence that rising mortgage rates are slowing but not stalling the housing recovery.

Sales jumped 7.9% to an annual rate of 421,000. That recouped some of July's 14.1% dive to 390,000, the lowest level of the year.

That decline followed the rise in rates from early May amid expectations of a Federal Reserve pullback on bond buying.
 

 












That rate hike, from about 3.6% for a 30-year fixed mortgage to roughly 4.8%, likely added a few hundred    dollars a month to service a mortgage, said Mark Luschini, chief investment strategist with Janney Capital  Management. That left many buyers with "sticker shock".

Yet Luschini believes solid housing fundamentals will overcome a temporary slowdown.

"Housing affordability remains attractive and housing formation continues to grow," he said.

New-home builders remain upbeat. Lennar (LEN) and KB Home (KBH) reported better-than-expected  earnings Tuesday. Lennar CEO Stuart Miller said the rate impact is "mild and temporary."

Applications for loans to buy a home, which had softened, have risen for the past two weeks, the Mortgage  Bankers Association said Wednesday. The latest 6.6% gain was the best in six months.

Consumers are fairly optimistic about the future and have pared down debts, said Steven Cunningham, chief  economist with the American Institute for Economic Research. He said rising rates may have spurred people to  act.

"Households have buying power and are willing to use it when the time is right," he said. "There has to be a reason, a trigger that says this is the right time to make the deal. Interest rates were the trigger."

While mortgage rates have fallen after the Fed's no-taper decision last week, they're still well above early May levels and unlikely to tumble all the way back.

New-home prices fell for a fourth straight month. Year over year they rose just 0.6%, down from 18% in April.

While double-digit gains are likely over, Luschini said, he expects housing is only in the fourth or fifth inning of the market cycle.

"The housing market will continue to recover," said Cunning ham. " But households are being more careful these days. Gone are the days when we thought house prices would always go up."
 

(news.investors.com)