By SARAH PORTLOCK and JOSH MITCHELL
WASHINGTON—Sales of new homes surged in June despite higher mortgage rates, maintaining momentum for a key sector driving the economic recovery.
New-home sales increased 8.3% last month to a seasonally adjusted rate of 497,000, the Commerce Department said Wednesday. That was the highest level since May 2008. Sales were up 38% from a year earlier.
The sales jump comes amid a sharp escalation in mortgage rates, which began rising in late May. The average for a 30-year fixed-rate loan is now up about one percentage point from its recent low to 4.58%, according to Mortgage Bankers Association data also released Wednesday. That’s down from 4.68% a week earlier.
“The increase in mortgage rates over the past two months does not appear to have dented new-home sales, at least not yet,” said Stuart Hoffman, chief economist at PNC Financial Services Group. He cited pent-up demand, a better labor market and stronger consumer confidence as factors behind the sales boost.
Mortgage rates can hit new-home sales more quickly than sales of previously owned homes because the new-home figures are measured when a buyer signs a contract to purchase a new home. Existing-home sales figures reflect closings 30 to 60 days later, on average, after a contract is signed.
Prospective home buyers could be reacting to rising rates by moving quickly to purchase a home before prices increase more. Economists say would-be buyers likely find higher rates to be affordable despite larger payments, and noted that rates are still low on a historical basis.
Still, some analysts say the impact of mortgage rates on June home sales could be muted because builders will sometimes provide a break for buyers—offsetting the higher interest rates—in order to reduce the level of cancellations.
The strong sales pace in June kept inventory tight, pushing up home prices. The stock of new homes for sale at the end of June was 161,000. That would take 3.9 months to deplete at the current sales pace, the quickest since January. Meanwhile, the median price for a new home sold in June was $249,700, up 7.4% from that time last year.
Yet the housing market hasn’t fully rebounded. New-home sales peaked in July 2005, when they hit an annual pace of nearly 1.4 million, and bottomed out in February 2011 with a rate of only 270,000.
“While new-home sales are obviously well above the rock-bottom pace recorded in the depths of the recession and the early stages of the recovery, they are still weak in absolute terms,” said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc.
The latest report showed that sales were weaker in earlier months than previously reported. May’s pace was revised down to 459,000 from 476,000, and April’s figure also was a slower rate than first estimated.
But the sector’s recent resilience suggests the housing market will continue to boost the U.S. economic recovery.
Earlier this week, the National Association of Realtors said sales of previously owned homes declined slightly in June from a month earlier, but were more than 15% higher from a year ago. On Tuesday, the Federal Housing Finance Agency said home prices in May rose 0.7% on loans backed by the government-controlled mortgage companies Fannie Mae and Freddie Mac.
June’s new home sales rose in the Northeast, South and West but dropped in the Midwest.