New home sales jump in Oct. after Sept. drop

WASHINGTON - Americans ramped up purchases of new homes in October after three months of soft sales, evidence that the housing recovery is improving fitfully.

Sales of new homes grew 25.4 percent to a seasonally adjusted annual rate of 444,000, the Commerce Department said Wednesday. That was the largest monthly percentage increase since May 1980.

"This report supports our view that the weakness in the third quarter was a temporary pause in the housing market recovery," said economists with IHS Global Insight in note to clients.

Still, the increase came after sales had fallen 6.6 percent in September to a 354,000 annual rate, the weakest since April 2012. And sales in August and July were revised lower to 379,000 and 373,000, respectively.

New homes sales have risen 21.6 percent higher for the 12 months ending in October. The pace remains well below the 700,000 consistent with a healthy market.

Sales had slowed over the summer after mortgage rates rose sharply and a limited number of homes for sale boosted prices. The combination made home-buying less affordable.

Prices for new homes eased in October. They fell 4.5 percent to $245,800 from September and have declined slightly over the past 12 months.

The number of new homes available for sale was 183,000 in October. That's still relatively lean - at the August sales' pace it would almost take five months to exhaust the supply.

The Commerce Department delayed the release of the September sales figures because of the partial government shutdown in October. As a result, new-home sales for October and September were released on Wednesday, in addition to revisions for the two previous months.

Mortgage rates are nearly a full percentage point higher than the spring. Rates rose in May when the Federal Reserve first signaled that it might slow its $85 billion in monthly bond purchases. But rates have moderated from recent highs after the Fed decided to keep its bond buying intact.

The latest average rate on a 30-year fixed mortgage was 4.29 percent, which is still close to historic lows.

"The take-home message is that the sharp increase in mortgage interest rates between May and August took a heavier toll on housing market activity than we had originally thought," said Paul Diggle, an economist with Capital Economics, in a note to clients. "However, this blow looks to have been entirely transitory. After all, the level of new home sales in October was more-or-less exactly equal to the average level between January and June."

There are signs that builders are preparing for less growth. Approved permits to build single-family houses began to flat line in the spring, while spending on home construction spending fell 0.5 percent in October from September.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to National Association of Home Builders.