Unexpected Drop in New-Home Sales

August 26, 2014

Sales of newly built single-family homes dipped 2.4 percent in July, catching many housing analysts off guard.

"We are somewhat surprised by this dip, considering builder confidence and new-home starts are on the rise," says Kevin Kelly, chairman of the National Association of Home Builders. "However, builders are increasing their level of inventory in anticipation that sales will gradually improve during the rest of the year."

Last week, the Commerce Department reported that construction of new homes surged to its highest level since November, rising 15.7 percent in July to a seasonally adjusted annual pace of 1.09 million units. Additionally, builder confidence in the market for new single-family homes reached its highest score since the beginning of the year

Despite July's drop in new-home sales, builders remain confident that the sector's outlook is brighter.

"Though new-home sales is a volatile metric that can fluctuate significantly from month to month, the economic fundamentals are in place for an ongoing housing recovery," says David Crowe, NAHB's chief economist. "Consumer confidence continues to improve, mortgage rates are at yearly lows, and the labor market is healing. These factors should help spur pent-up demand."

Across the country, new-home sales in July dropped the most in the Northeast, falling 30.8 percent. New-home sales dropped 15.2 percent in the West and 8.8 percent in the Midwest, the Census Department reported. Meanwhile, in the South, which is the nation's largest region, new-home sales increased 8.1 percent in July.

Source: National Association of Home Builders