Housing market remains sluggish despite lower mortgage rates

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New home sales rose less than than expected in June and sales for several recent months were lower than previously reported, according to data released by the Census Bureau and Department of Housing and Urban Development on Wednesday.

Sales of single-family homes grew for the first time in three months, rising 7% to a 646,000 pace. Sales in May were revised to an 8.2% decrease to 604,000 from the initially reported 626,000 level, while the numbers for April and March were also cut.

Economists polled by IFR Markets expected 659,000 sales in the month.

"Though there is a clear demand for new homes, builders continue to wrestle with affordability headwinds, including shortages of buildable lots and skilled labor, that are constraining sales," according to Greg Ugalde, chairman of the National Association of Home Builders.

“Recent housing activity slowdown is being driven by affordability challenges,” according to Sam Dunlap, senior portfolio manager at Angel Oak Capital Advisors. “Affordability concerns surrounding rising home prices have been partially offset by plummeting mortgage rates.”

With wages rising and unemployment low, housing market “fundamentals remain solid,” he said.

Sales rose in the South and the west, but declined in the Northeast and the Midwest.

The median price rose to $310,400, from $303,500 in May, and the mean price dipped to $386,600 from $371,200. In June there were 6.3 months of supply on the market, down from 6.7 months in May.

In another sign of difficulties in the housing sector, the Mortgage Bankers Association said mortgage applications fell 1.9% in the week ending July 19, on a seasonally adjusted basis.

Both refinances and purchases slipped 2% in the week, on a seasonally adjusted basis.

“Mortgage applications were down last week, even as rates moved lower across the board, with the 30-year fixed rate at 4.08%,” said Joel Kan, MBA associate vice president of economic and industry forecasting. “Refinance activity was lower, but we did see government refinance applications increase, driven solely by a 12% rise in FHA applications.”

The drop in refinance applications indicates “that as we see rates lower for longer, borrowers need more of a drop in rates to consider refinancing,” he said.

Manufacturing
The IHS Markit U.S. Manufacturing PMI fell to 50.0 in July, its lowest reading since September 2009, from 50.6 in June. The reading suggest the sector was neither expanding nor contracting. Production volumes, employment and purchases all slid in the month. The services index gained to 52.2 in July from 51.5 in June.

“The decline in the U.S. manufacturing sector activity should be monitored as manufacturing typically slows before the rest of the U.S. economy experiences a downturn,” said Scott Anderson, chief economist at Bank of the West. “For now, the U.S. service sector appears resilient.”

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