WASHINGTON (Reuters) - Sales of new U.S. single-family homes fell less than expected in April amid a rise in transactions in the South and Northeast, and data for the prior three months was revised lower, suggesting the housing market was struggling to regain momentum.
Economists said rising mortgage rates did not appear to be significantly hurting sales and blamed the drop in purchases on an acute shortage of houses at the lower end of the market.
Mortgage rates have climbed to seven-year highs as a healthy economy and tightening labor market fan fears of inflation and expectations of aggressive interest rate increases from the Federal Reserve. The U.S. central bank raised interest rates in March and has forecast at least two more hikes for this year.
“New home sales are not showing signs of headlong retreat, so we know that higher interest rates have not really begun to bite yet and slow sales activity in a worrisome way,” said Chris Rupkey, chief economist at MUFG.
The Commerce Department said on Wednesday new home sales dropped 1.5 percent to a seasonally adjusted annual rate of 662,000 units last month. March’s sales pace was revised down to 672,000 units from the previously reported 694,000 units.
Home sales in February and January were not as strong as initially estimated. Economists polled by Reuters had forecast new home sales, which account for 11 percent of housing market sales, falling 2.0 percent to a pace of 679,000 units in April.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They increased 11.6 percent from a year ago.
The PHLX housing index .HGX was trading higher, outperforming a broadly weaker U.S. stock market. The dollar rose against a basket of currencies. Prices for U.S. Treasuries were trading higher.
New home sales are benefiting from an inventory squeeze in the market for previously owned houses, which is constraining home resales. Builders have been unable to keep up with demand for housing, which is being driven by a robust labor market, citing expensive lumber as well as land and worker shortages.
Tight inventories are pushing up house prices. Expensive houses and rising mortgage rates are making home purchasing less affordable, especially for first-time buyers who account for less than a third of transactions.
The 30-year fixed-rate mortgage rate averaged 4.61 percent in the week ended May 17, the highest level since May 2011, according to mortgage finance agency Freddie Mac. That compared to an average of 4.55 percent in the previous week.
A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to purchase a home declined 2 percent last week from the week prior.
Investment in homebuilding was unchanged in the first quarter and economists are forecasting little or no growth in the April-June period.
Last month, new home sales rose 0.3 percent in the South, which accounts for the bulk of transactions. They rebounded 11.1 percent in the Northeast and were unchanged in the Midwest. Sales in the West dropped 7.9 percent in April.
The median new house price rose 0.4 percent to $312,400 in April from a year ago. There were 300,000 new homes on the market in April, the most in nine years and up 0.7 percent from March. Supply is just over half of what it was as the peak of the housing market boom in 2006.
“While the inventory of new homes for sale is relatively healthy, much of that stock is at the expensive end of the spectrum and therefore not much help for the majority of first-time buyers,” said Matthew Pointon, property economist at Capital Economics in New York.
At April’s sales pace it would take 5.4 months to clear the supply of houses on the market, up from 5.3 months in March. About two-thirds of the houses sold last month were either under construction or yet to be built.
Reporting by Lucia Mutikani; Editing by Andrea Ricci