New Home Sales Post Biggest Drop in Nearly a Year

New Home Sales
Mark Lennihan/AP
WASHINGTON -- Sales of new U.S. homes plunged in June, a sign that real estate continues to be a weak spot in the economy.

New home sales fell 8.1 percent last month to a seasonally adjusted annual rate of 406,000, the Commerce Department said Thursday. The report also revised down the May sales rate to 442,000 from 504,000.

Buying of new homes fell 20 percent in the Northeast, followed by less extreme declines in the Midwest, South and West. The modest sales caused the inventory of new homes on the market to increase to 5.8 months, the highest since October 2011.

The median sales price was $273,500, up 5.3 percent over the past 12 months.

Home sales had been improving through the middle of 2013, only to stumble over the past 12 months due to a mix of rising prices, higher mortgage rates and meager wage growth.

The pressures from mortgage rates have eased since the start of 2014 and the pace of price increases have slowed. Still, other indicators suggest that home-buying has stalled after rebounding from lows reached during the Great Recession.

The National Association of Realtors reported that sales of existing homes increased 2.6 percent in June to a seasonally adjusted annual rate of 5.04 million homes. It marked the first time that sales have been above the 5 million-mark since October.

Economists were encouraged by the second straight monthly gain in existing home sales, though those sales are still hovering below the recent peak of 5.38 million sales hit last July.

Nasty winter storms weighed on sales of both existing and new homes in late 2013 and early 2014, making it unlikely that sales can match last year's pace. Sales of existing homes are expected to be below the 5.1 million homes bought last year and the 5.5 million annual sales that would be consistent with a healthy housing market.

Still, there are indications that sales could pick up.

Along with the arrival of spring, average mortgage rates have dropped to 4.13 percent, from 4.53 percent at the beginning of this year, according to Freddie Mac. The rate of price gains has slowed as the inventory of homes for sale has improved. But wage growth has barely kept pace with inflation, reducing how much income people have to spend and save for down payments.

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I priced building a new home when relocating to WI from GA in late 2013. It was an easy choice after a few weeks of house hunting and talking to design-build residential companies. Within about a month of research and house hunting, we decided to buy in an established neighborhood because of the much lower cost, quick turnaround and reduced hassle. Our family built a home before and know what a headache building can be. We found a 4119 sq. ft.. 12-year old ranch style home with ICF construction for a price of $126 per square foot, including a half acre lot in an area with excellent schools and a great neighborhood. Building a comparable home would have taken the better part of nine months and would have cost around $200 per sq. ft. for comparable construction and finish, but would not have included mature landscaping and the outstanding established neighborhood we found. The compromises we made include a 3-car garage instead of desired 3.5 to 4-car garage that we really wanted and lack of a formal dining room that we are finding now that we do not really need.

July 25 2014 at 9:14 AM Report abuse rate up rate down Reply
In My Theory-Opinion

Hey day buyers of big homes and big classic cars are dying off in their 80's.

New buyers would have to have their home's rooms to rent out to make it (lot of roommates' cars on the driveway).

Too many born with TV games, cellphones, ipad, cable TV, driving without a license or auto insurance are unable to become homeowners.

Including the professionals who are living in rental housing due to high college/university bills owed.

Dating games turn sour once they find out each others' debts.

Obama's still enjoying his perks putting a lot $$$$ towards the US Debt ceiling soon to explode.

His Air Force One 747 cost $181,000 per hour to operate, most time twin AFO 747's have to fly at the same ime to confuse the enemy on which one has the President on board. (Now they are trained to shoot down both 747's).

In my opinion.

July 24 2014 at 11:33 PM Report abuse rate up rate down Reply

Good. What's wrong with renting??

People should save their money until they have 20% or more. Cash only is ideal! Learn from the past people!

Of course they look at me like I'm crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from Insurance Panda. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).

You live exactly like people did in the 1970's, and suddenly there's tons of money. Usually moderate earners can save $500 a month on these types of luxuries. May not seem like much, but it's usually the difference between being in financial trouble, and at least not losing ground.

My point is that it's so odd that people seem to forget all the little things we have, buy, use - that they didn't in the "better" times. That stuff isn't free.

July 24 2014 at 5:58 PM Report abuse +1 rate up rate down Reply

Perhaps when builders decide to stop building McMansions on large lots, and turn to constructing smaller, more efficient, and more affordable houses, sales will increase.

July 24 2014 at 3:41 PM Report abuse rate up rate down Reply

You have to mine it, grow it or make it to create new wealth and without new wealth creation it's impossible to grow the private sector economy. With the growth of government and regulations the lower and middle class gets squeezed. So if you like it just keep voting for liberals/socialist/communists. They are always willing to spend other folks money for projects they prefer and if that doesn't work they encourage printing more money rather than change their ways. Tax the rich and the rich pass it back in higher goods and services plus their margins. It's been that way and it will continue as long as folks buy into the lies during the election cycles. I'll be fine regardless of what choice you make but just though you might like the read truth for a change.

July 24 2014 at 2:17 PM Report abuse rate up rate down Reply

The sun was to bright and it was warm.

July 24 2014 at 1:49 PM Report abuse -1 rate up rate down Reply

An "average" home is priced at approximately a quarter million dollars. However, new job creation is mostly low-paying part-time jobs in retail and service fields. It's amazing that ANY houses are selling at these prices.

July 24 2014 at 12:30 PM Report abuse +1 rate up rate down Reply

Wow, they were off 62,000??? How can that be? If an accounting error that big is made, i would assume they were fired?

July 24 2014 at 12:07 PM Report abuse rate up rate down Reply

Another true indicator of the Obama, Pelosi, Reid. democrat economy.

July 24 2014 at 11:46 AM Report abuse +1 rate up rate down Reply
1 reply to jdykbpl45's comment
Big John

You have got to be kidding!!!!!! Your hero, George W. Bush and Alan Greenspan KILLED the housing market and Greenspan has openly admitted that in interviews numerous times. You folks just cannot and will not admit the worst recession since the Great Depression was on Bush's watch. Please quit listening to Fox propaganda and read the facts of history. Look at when unemployment started to tank and read about what happened to the housing market in 2008. If Bush was so good why was he asked to stay away from the Republican convention and not even asked to make a speech or endorse anyone? Get into reality.

July 24 2014 at 2:19 PM Report abuse -4 rate up rate down Reply
3 replies to Big John's comment