July 24, 2020 / 3:43 PM / 18 days ago

WRAPUP 1-U.S. new home sales shine in June; business activity picks up

* New home sales increase 13.8% in June; May revised up

* Median new home price rises 5.6% from year ago

* Business activity in July regains momentum

By Lucia Mutikani

WASHINGTON, July 24 (Reuters) - Sales of new U.S. single-family homes rose to a near 13-year high in June as the housing market outperforms the broader economy amid record low interest rates and migration from urban centers to lower-density areas because of the COVID-19 pandemic.

Other data on Friday showed business activity rose to a six-month high in July, but companies reported declining orders as a resurgence in new coronavirus cases across the country weighed on demand.

The Commerce Department said new home sales rose 13.8% to a seasonally adjusted annual rate of 776,000 units last month, the highest since July 2007. New home sales are counted at the signing of a contract, making them a leading housing market indicator.

May’s sales pace was revised upward to 682,000 units from the previously reported 676,000 units. New home sales have now recouped losses suffered when businesses were shuttered in mid-March to slow the spread of the respiratory illness.

Economists polled by Reuters had forecast new home sales, which account for about 14% of housing market sales, rising 4% to a 700,000-unit pace in June. New home sales accelerated 6.9% from a year ago in June.

The report came on the heels of data this month showing a surge in homebuilder confidence in July, and an acceleration in home construction and sales of previously owned houses in June.

The coronavirus crisis has led companies to allow employees to work from home. The emerging need for home offices and room for schooling has fueled demand for more spacious homes in small metro areas, rural markets and large metro suburbs.

But the explosion of COVID-19 infections, which has forced some authorities in the hard-hit South and West regions to either shut down businesses again or pause reopenings, could slow the housing market momentum.

WEAK LABOR MARKET

In addition, the labor market recovery appears to have stalled, with the number of Americans claiming new unemployment benefits rising last week for the first time in nearly four months. A staggering 31.8 million people were receiving unemployment checks in early July.

Job losses have disproportionately affected low-wage workers, which could explain why the housing market is doing much better than other sectors of the economy, which slipped into recession in February. The 30-year fixed mortgage rate is at an average of 3.01%, close to a 49-year low of 2.98% touched last week, according to data from mortgage finance agency Freddie Mac.

In a separate report on Friday, data firm IHS Markit said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 50.0 this month from 47.9 in June. The increase ended five straight monthly declines.

A reading above 50 indicates growth in private sector output. IHS Markit said some service providers were struggling with the reintroduction of lockdown measures. The survey’s flash composite new orders index slipped to a reading of 49.5 this month from 49.9 in June.

Stocks on Wall Street were trading lower as U.S.-China tensions and fears over mounting COVID-19 cases weighed on investor sentiment, erasing all gains for the benchmark S&P 500 index so far this week. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.

In June, new home sales soared 89.7% in the Northeast and jumped 18% in the West. They increased 7.2% in the South, which accounts for the bulk of transactions, and advanced 10.5% in the Midwest. The median new house price increased 5.6% to $329,200 in June from a year ago. New home sales last month were concentrated in the $200,000 to $400,000 price range.

There were 307,000 new homes on the market in June, down from 311,000 in May. At June’s sales pace it would take 4.7 months to clear the supply of houses on the market, down from 5.5 months in May. More than 60% of the homes sold last month were either under construction or yet to be built.

Reporting by Lucia Mutikani; Editing by Jonathan Oatis and Andrea Ricci

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