US new homes sales hit 7-month top in sign of robust economy
Jobless claims up but US labour market stays tight
New US single-family home sales jumped to a seven-month high in February, suggesting the housing market recovery was gaining momentum despite higher prices and rising mortgage rates.
Other data on Thursday showed an unexpected increase in the number of Americans filing for unemployment benefits last week. Still, the labour market continues to tighten, which together with the strength in housing, should underpin economic growth.
“New home sales are the secret sauce that helps make the economy grow,” said Chris Rupkey, chief economist at MUFG Union Bank in New York. “This will put some backbone in investment spending and make this economic expansion more sustainable.”
The Commerce Department said new home sales increased 6.1 per cent to a seasonally adjusted annual rate of 592,000 units last month, the highest level since July 2016. Sales have now more than recouped the sharp drop suffered in December.
Economists had forecast new home sales, which account for about 9.7 per cent of the overall market, rising 0.7 per cent to a rate of 565,000 units in February. Sales were up 12.8 per cent compared to a year ago, showing the housing market’s resilience despite reduced affordability.
The 30-year fixed mortgage rate is around 4.30 per cent. House prices increased 5.7 per cent in January from a year ago, according to a government report published on Wednesday.
Last month’s new home sales were likely partially buoyed by unseasonably warm weather. Most economists see a limited impact on housing from higher mortgage rates because a tightening labour market is improving job opportunities for young adults.
“Rising mortgage rates don’t appear to have been much of an impediment to increasing housing demand in February as solid job gains, faster wage growth, and stronger household formations offset the drop in affordability,” said David Berson, chief economist at Nationwide in Columbus, Ohio.
In a separate report, the Labour Department said initial claims for state unemployment benefits increased 15,000 to a seasonally adjusted 258,000 for the week ended March 18.
Claims have now been below 300,000, a threshold associated with a healthy labour market for 80 straight weeks. That is the longest stretch since 1970 when the labour market was smaller. The job market is currently near full employment.
The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose only 1,000 to 240,000 last week.
The claims data covered the period during which the government surveyed employers for March’s non-farm payrolls report. The four-week average of claims fell 7,750 between the February and March survey weeks, suggesting another month of strong job gains.
Job growth has averaged 209,000 per month over the past three months and the unemployment rate is at 4.7 per cent, close to the nine-year low of 4.6 per cent hit last November. Tightening labour market conditions and rising inflation enabled the Federal Reserve to raise interest rates last week.
“The claims data do not suggest a clear shift in labour market conditions between the reference periods for the February and March reports,” said Daniel Silver, an economist at JPMorgan in New York.
The market for new houses is benefiting from a shortage of properties for sale. A report on Wednesday showed a 3.7 per cent drop in sales of existing homes in February.
Last month, new single-family homes sales surged 30.9 per cent to their highest level since November 2007 in the Midwest and increased 3.6 per cent in the South. They jumped 7.5 per cent in the West but slumped 21.4 per cent in the Northeast.
The inventory of new homes on the market increased 1.5 per cent to 266,000 units last month, still less than half of its peak during the housing boom in 2006.
At February’s sales pace it would take 5.4 months to clear the supply of houses on the market, down from 5.6 months in January. A six-month supply is viewed as a healthy balance between supply and demand.