US new home sales bounce off record lows

WASHINGTON: Sales of new homes last month in the United States rose more than what was forecast following an unprecedented collapse in the previous month, a signal that the worst of the slump triggered by the end of a government tax credit is over.

Purchases increased 24 per cent from May to an annual pace of 330,000, figures from the Commerce Department showed yesterday. The rate was the second-lowest since 1963 after May's downwardly revised 267,000 pace.

The lowest mortgage rates on record may help underpin demand, stabilising the industry that triggered the worst recession since the 1930s.

Even so, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 per cent and the economy cools.

Sales are 'bouncing along the bottom', said Mr Eric Green, chief market economist at TD Securities in New York.

'The future is going to be dependent on job growth. There's no demand because confidence is weak and employment is weak.'

Economists forecast that sales would rise 3.3 per cent to an annual pace of 310,000, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from 260,000 to 360,000.

The government had initially estimated May sales at a 300,000 rate and revised figures downwards for every month since March.

The 37 per cent plunge in May was the biggest on record.

The median price decreased 0.6 per cent from June last year to US$213,400 (S$291,100).

Purchases increased in three of four regions, led by a 46 per cent jump in the north-east and a 33 per cent surge in the south, the largest area.

Demand dropped 6.6 per cent in the west to a record low 57,000 pace.

The report suggested the housing market may be close to working through the distortions following the end of a popular home-buyer tax credit in April, an incentive that brought forward sales.

Data last week showed home construction fell to an eight-month low last month, while existing home sales were the lowest in three months.

To become eligible for a federal incentive worth up to US$8,000, buyers had to sign contracts by April 30 and close deals by the end of last month.

The surge in demand prior to the April deadline prompted the government this month to extend the closing deadline until Sept 30 to ensure buyers had enough time to complete transactions.

BLOOMBERG, REUTERS

Source: Straits Times, 27 Jul 2010