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OCT 26, 2020  12:51PM

WRAPUP 3-U.S. new home sales drop; record low mortgage rates underpinning demand

RTR North American Financial News

 (Adds analyst comment, updates markets)
    * New home sales fall 3.5% in September
    * Sales fall in three regions, rise in the West
    * Median new house price increases 3.5% year-on-year

    By Lucia Mutikani
    WASHINGTON, Oct 26 (Reuters) - Sales of new U.S.
single-family homes unexpectedly fell in September after four
straight monthly increases, but the housing market remains
supported by record low mortgage rates and demand for more space
as the COVID-19 pandemic drags on.
    The decrease in sales reported by the Commerce Department on
Monday followed data last week showing single-family
homebuilding and permits racing to levels last seen in 2007 in
September. Confidence among homebuilders hit a record high in
October, while sales of previously owned homes jumped to their
highest level in more than 14 years in September. 
    "While there could be some ups and downs along the way, we
still look for strength in the housing market as low mortgage
rates boost activity and earlier pent-up demand for housing is
released," said Daniel Silver, an economist at JPMorgan in New
    New home sales fell 3.5% to a seasonally adjusted annual
rate of 959,000 units last month. August's sales pace was
revised down to 994,000 units from the previously reported 1.011
million units. Economists polled by Reuters had forecast new
home sales, which account for about 12.8% of housing market
sales, rising 2.8% to a rate of 1.025 million units.
    New home sales surged 32.1% year-on-year. New home sales are
counted at the signing of a contract, making them a leading
housing market indicator. September's monthly decline could,
however, be flagging a slowdown in housing market momentum
heading into the fourth quarter.
    Applications for loans to purchase a home have dropped for
four straight weeks. While homebuilder confidence is at historic
highs, shortages of land, labor, lumber and other key building
materials are lengthening construction times.
    "This month's new home sales figures indicate that the
housing market might be finally losing some steam," said John
Pataky, executive vice president at TIAA Bank in Jacksonville,
    Stocks on Wall Street were trading lower, setting the Dow
for its worst day in more than seven weeks, dragged down by
rising new coronavirus cases. The PHLX housing index .HGX 
fell. The dollar rose versus a basket of currencies. U.S.
Treasury prices were higher.
    Though the COVID-19 pandemic has bruised the economy, it has
boosted the housing market as Americans flee from city centers
to the suburbs and low-density areas in search of more space for
home offices and schooling. Staggering unemployment, which has
left 23.2 million people on jobless benefits, has
disproportionately affected low-wage workers.
    Home sales have been concentrated in the single-family
segment and in the higher price ranges. Both first-time and
second-home buyers have been active in the market, with bidding
wars reported in some parts of the country.
    Last month's decline in new home sales did not change
expectations that the housing market likely contributed to a
sharp rebound in economic activity in the third quarter. Growth
estimates for the July-September quarter are as high as a 35.3%
annualized rate, which would recoup roughly two-thirds of the
output lost because of the pandemic.
    The economy contracted at a 31.4% pace in the second
quarter, the deepest decline since the government started
keeping records in 1947. The government is scheduled to publish
its snapshot of third-quarter GDP on Thursday. 
    Third-quarter GDP growth was juiced up by government money,
which has since run out. That together with the resurgence in
coronavirus infections has led to projections of a steep
slowdown in activity in the fourth quarter. 
     "The housing sector should remain supportive of growth at
least for the next couple of quarters as strong demand drives
new construction," said Andrew Hollenhorst, an economist at
Citigroup in New York.
    The 30-year fixed mortgage rate is at an average of 2.80%,
according to data from mortgage finance agency Freddie Mac. 
    In September, new home sales tumbled 28.9% in the Northeast.
They fell 4.7% in the South, which accounts for the bulk of
transactions, and dropped 4.1% in the Midwest. But sales
increased 3.8% in the West. 
    The median new house price increased 3.5% to $326,800 in
September from a year ago. New home sales last month were
concentrated in the $200,000 to $399,000 price range.
    There were 284,000 new homes on the market last month, up
from 282,000 in August. At September's sales pace it would take
3.6 months to clear the supply of houses on the market, up from
3.4 months in August. Just over two-thirds of the homes sold
last month were either under construction or yet to be built.
    "The share of homes sold but not yet started continues to
trend upwards," said Doug Duncan, chief economist at Fannie Mae
in Washington. "This suggests that homebuilders are struggling
to keep up with demand."  

 (Reporting by Lucia Mutikani; 
Editing by Chizu Nomiyama and Andrea Ricci)
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