U.S. Home Sales Miss the Mark in July, Despite Increased Inventory

The Commerce Department said on Tuesday new home sales rose less than expected in July, though much-needed inventory rebounded from the prior month. U.S. single-family home sales increased 5.4 percent to a seasonally adjusted annual rate of 507,000 units, while June’s sales pace was revised slightly down to 481,000 units from the previously reported 482,000 units.

Economists polled by Reuters had anticipated new home sales, which account for 8.3 percent of the entire housing market, increasing to a 510,000 unit-rate. Still, new home sales tumbled to their lowest level since November last month, and are now up 25.8 percent compared to July of last year.

While many content the housing market is gaining stream–noting data last week showing home resales jumped to a near 8-1/2-year high in July, and groundbreaking on new home building climbing to its highest level since October 2007–just days before the release of the composite National Mortgage Risk Index (NMRI) for Agency purchase loans. The index, which measures mortgage risk in the housing market, stood at a series-high 12.50 percent in June, up 0.4 percent from the average for the prior three months and 0.8 percent on a year-over-year basis.

The index gains are being fueled by the increase share in high-risk FHA loans, and agency loan originations continued their dangerous migration from large banks to non-banks in June. The shift accounted for much of the upward trend in the composite NMRI. Because non-bank lending is substantially riskier than the large bank, more financially sound business it replaces, many economists aren’t celebrating the NAR data.

Despite the risk, the housing market is expected to contribute to gross domestic product this year, though it remains constrained by a persistent shortage of homes available for sale. New homes sales rocketed to 23.1 percent in the Northeast, or the highest level since May 2014. Sales increased 6.7 percent in the West and were up 5.8 percent in the populous South. In the Midwest, sales fell 6.9 percent.

The stock of new houses for sale increased 1.9 percent to 218,000 last month, the highest level since March 2010. Still, supply remains less than half of what it was at the height of the housing boom. At July’s sales pace it would take 5.2 months to clear the supply of houses on the market, down from 5.3 months in June. The median price of a new home rose 2 percent from a year ago to $285,900.