The rate of new home sales across the nation dropped in July. It fell 13.4 percent compared with the previous month. This was the biggest drop in more than three years. Economists pointed to the increasing mortgage rates but said that it would not derail the momentum of the housing market that has been getting price increases and record sales.
Sales of single family homes dropped to a seasonally adjusted annual rate of 394,000, according to the Census Bureau. The sales in June were modified down to 455,000 from the initially reported 497,000. The increase in mortgage rates has dragged the market down. Since May, rates have been increasing and driven by expectations that the Federal Reserve will start reducing its stimulus program that has kept interest rates to a historical low. The rate for 30 year fixed rate mortgage hit 4.58 percent last week, which was a two year high.
A surge in home sales was experienced in June as buyers tried to get deals as mortgage rates increased. That led to the sharp drop in July, which analysts said was just a pause after the rush in June. Housing data over the next couple of months is likely to continue to be volatile as investors wait on when the Federal Reserve will start to pull back its bond buying program.
New home sales improved compared with the previous year but homes are not built fast enough. Construction activity has picked up this year but the rate of building has to be at least 50 percent faster in order to meet the demand.
Home builders said that they are trying to keep up with the demand. Economists estimated that it would take two years for construction to get back to normal levels, which is around 1.2 million to 1.5 million homes each year.