Sales of new U.S. homes declined more than projected in July to the lowest level in five months, indicating the industry is struggling to stabilize two years into the economic recovery. Purchases fell 0.7 percent to a 298,000 annual pace after a 300,000 rate in June that was slower than previously estimated, figures from the Commerce Department showed today in Washington. The median projection in a Bloomberg News survey of economists called for a 310,000 rate in July. Builders are less inclined to start new projects as they face competition from cheaper existing homes and the prospect of foreclosures putting more unsold properties on the market. A jobless rate above 9 percent and limited employment growth indicate housing may keep weighing on the recovery even with mortgage rates at a record low. “New-home sales remain under intense pricing pressure from the large number of distressed homes on the market,” Steven Wood, president of Insight Economics LLC in Danville, California, said before the report. “Mortgage applications for home purchase have remained quite depressed, suggesting that home sales have also stayed very weak.” Estimates of the 76 economists surveyed by Bloomberg ranged from annual rates of 290,000 to 330,000. About 323,000 new dwellings were sold in 2010, the fewest on record. The median sales price of a new home increased 4.7 percent to $222,000 from July 2010. There were a record-low 165,000 new houses on the market at the end of July, leaving the supply of homes at the current sales rate at 6.6 months’ worth, the same as in June. By Region Sales dropped in two of the four U.S. regions, led by a 7.4 percent slump in the South that was the biggest since August 2010. Purchases declined 5.9 percent in the West. Competition from cheaper, existing homes is hurting sales of new dwellings. Distressed properties, which include foreclosures and short-sales, have made up about 33 percent of all existing- home sales since late 2008, according to the National Association of Realtors. Purchases of previously owned houses, which account for the bulk of the market, fell last month to the weakest pace since November, the NAR reported on Aug. 18. The 3.5 percent decrease reflected an increase in cancellations due to strict lending rules and low appraisals. “The U.S. housing market remains under stress,” Frank Blake, chairman and chief executive officer at Home Depot Inc. (HD), said on an Aug. 16 teleconference with analysts. “We do not expect any meaningful improvement in the housing market for the back half of 2011, and events here and across the globe would suggest that there are more risks to the downside than the upside on GDP growth.” Jobs and Confidence The home sales figures underscore Federal Reserve Chairman Ben S. Bernanke’s view that the market is hampered by limited job growth and declining consumer confidence. “Residential construction activity remains at an extremely low level,” Bernanke said in July 13 testimony to Congress. “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment.” Consumer confidence in August plunged to the lowest level since May 1980, according to the Thomson Reuters/University of Michigan preliminary index. Rising pessimism poses a risk household spending will cool further, hindering a recovery that’s shown signs of fatigue. Mortgage Rates Declining sentiment, a lack of hiring and limited income are hurdles for a housing market even with mortgage rates at all-time lows. The average on a 30-year fixed-rate mortgage was 4.15 percent in the week ended Aug. 18, down from 4.42 percent in the period a year ago, according to Freddie Mac. More signs of strain in the housing market emerged yesterday. The percentage of U.S. mortgages overdue by one month rose to the highest level in a year in the second quarter as homeowners who lost jobs were unable to make their payments. The share of home loans overdue by 30 days rose to 3.46 percent of all mortgages, from 3.35 percent in the first quarter, according to a report today from the Mortgage Bankers Association in Washington. The percentage of mortgages overdue by 60 days increased to 1.37 percent from 1.35 percent, while foreclosures dropped for the second consecutive quarter. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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