Ahead of the Bell: US new home sales

US new home sales expected to show modest gain in November

Associated Press
US new home sales fall 1.6 percent in November
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In this Dec. 15, 2014 photo, a sold sign sits in front of a house under construction in Coppell, Texas. The Commerce Department reports on sales of new homes in November on Tuesday, Dec. 23, 2014. (AP Photo/LM Otero)

WASHINGTON (AP) -- The Commerce Department reports on sales of new homes in October. The report will be issued Tuesday at 10 a.m. Eastern.

MEAGER GAIN: Economists expect a slight 0.4 percent increase in new-home sales to a seasonally adjusted annual rate of 460,000, according to a survey by data firm FactSet.

SLOW SALES GROWTH: The construction market has been sluggish this year. Over the first 10 months of 2014, sales of new homes have inched up a mere 1 percent. Both housing starts and sales are running below historic levels, a sign that residential construction continues to lag behind the recovery of the broader economy that began more than five years ago.

Too many Americans lack the savings and solid credit records to upgrade to a newly built home. Or, they still owe more on their current mortgage than their home is worth. Despite steady price gains in recent years, roughly 8.7 million homeowners remain "underwater" on their mortgages. The continued decrease in underwater borrowers should eventually cause the number of listings and homes sold to increase.

New-home sales remain significantly below the annual rate of 700,000 seen during the 1990s. Buyers purchased new homes at an annual rate of 458,000 in October.

Sales have slowed for much of 2014 due to rising home prices and essentially flat incomes, which have cut into affordability for would-be buyers. The snow-filled winter that ushered in 2014 curbed buying activity and sales never quite recovered once the weather warmed.

Nor have sales been boosted as average 30-year mortgage rates have hovered below 4 percent for the past few months. Mortgage firm Freddie Mac reported last week that rates were averaging 3.8 percent, the lowest level since May 2013.

Sales of existing homes fell 6.1 percent to a seasonally adjusted annual rate of 4.93 million, the National Association of Realtors said Monday.

Strong hiring over the past year should also encourage sales. The unemployment rate has fallen to 5.8 percent, from 7 percent 12 months ago, gains that could over the next year cause pay to rise at a faster pace than inflation. That would help more people be able afford home ownership.

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