New Home Sales Fell in July, Suggesting a Cooling Housing Market

Sales of new homes in the U.S. unexpectedly fell in July.

Purchases of newly built single-family homes dropped 1.7% to a seasonally adjusted annual rate of 627,000 in July, the Commerce Department said Thursday. That was the second straight month of declines, following a sharp drop-off in June.

Economists surveyed by Bloomberg had expected a rise to a annualized rate of 649,000.

Despite the month over month decline, sales are 12.8% higher than a year ago.  The median price of new homes sold in July was $328,700, just 1.8% higher than a year ago.

New home sales are a relatively small slice of the U.S. real estate market but they punch above their weight class in terms of the economy. New home construction adds to employment levels and families moving into new homes purchase furniture, appliances, and other consumer goods.

The lower than expected sales figures are a sign the housing market is cooling off and, as a result, could give a smaller boost to the overall economy. Given the tightness of the labor market, however, that could be a welcome respite. Minutes from the Federal Reserve’s July meeting, released Wednesday, showed Fed officials concerned the economy was performing above its long-run potential and could overheat.

The decline in July was driven by a 52.3% decline in new-home sales in the Northeast.  New home sales in the South, the largest market for new home, fell 3.3 percent in July. Sales rose 10.9 percent in the West. The Midwest saw a 9.9 percent rise.