Consumer Confidence High
U.S. sales of new homes soared in July and consumer confidence in the economy stayed close to a record high, government and private figures showed Tuesday.
New-home sales jumped a larger-than-expected 14.7% last month to an annual rate of 944,000, after dropping 7.1% in June, the Commerce Department said. The increase was the biggest since April 1993.
“People still perceive this to be a good time to buy a house,” said Richard DeKaser, chief economist at National City Corp. in Cleveland. “Clearly people still believe the economy is in good shape and that their prospects are in good shape.”
The Conference Board, a New York-based research group, reported its August index of consumer confidence at 141.1. While that’s lower than July’s 143, it’s also the sixth time since December the index has been above 140. Before then, the last time it was above 140 was October 1968. The index reached a record 144.7 in January and matched that in May.
U.S. Treasury securities fell after Tuesday’s reports, which suggest a yearlong series of interest rate increases by the Federal Reserve hasn’t killed consumers’ appetites to spend money as they earn it.
“The fact we have more to spend means we use it up,” said Todd Hornquist, a 32-year-old electrical engineer from Chicago on a shopping spree in San Francisco.
He and his wife, Stephanie, a 32-year-old church office manager, say they’ll spend 10% to 15% more this year than last year. Stephanie got a promotion and a raise, boosting their income about 7%.
Personal spending rose last month at a faster pace than in June, and at twice the pace of income growth, Commerce Department figures showed Monday.
“Consumers haven’t noticed that the economy is supposed to be slowing,” said Suzanne Rizzo, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
Consumers show no signs they expect the economy to slow much in the next six months, the Conference Board’s confidence report showed. The index gauging future expectations, while slipping from its July level, was still the second highest since May. And the percentage of survey participants who said they planned to buy cars, appliances and homes rose this month.
Sales of new homes, which account for about 15% of all houses on the market, are on track to finish the year at 894,000, which would make it the second-highest sales year after 1999, when 907,000 houses were sold, the Commerce figures showed.
Home builders’ shares are rising on expectations the housing market isn’t weakening much. An index of 31 builder-related stocks compiled by Bloomberg News is up 15% this month and rose 2 points, or 2.9%, Tuesday.
For July, sales rose in all regions except the Northeast. Analysts had expected sales to increase 1.3%.
Rising new-home sales pushed up the median price of a new home 3.8% in July to $166,100 from $160,000 in June. Also, the supply of new homes for sale shrank to 3.8 months’ worth from 4.6 months in June. The July inventory was the lowest since December 1998.
Interest on an average fixed-rate 30-year loan has declined from a five-year high of 8.64% in mid-May. In July, the average rate on a 30-year mortgage was 8.15%, according to Freddie Mac, the No. 2 buyer of U.S. mortgages. In the week ended Aug. 25, the rate was 7.99%.
The decline in mortgage rates has brightened home builders’ expectations as well. The National Assn. of Home Builders’ housing market index advanced to 61 for August from a reading of 58 for July.
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New-Home Sales
Seasonally adjusted annual rate, in thousands of units:
July: 944,000 units
Source: Commerce Department
