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New home sales up 3.6% in July, match two-year high
Updated 8/23/2012 6:35 PM ET
WASHINGTON (AP) — Sales of new homes in the United States rose 3.6% in July to match a two-year high reached in May, the latest sign of a steady recovery in the housing market.

The Commerce Department said Thursday that new-home sales reached a seasonally adjusted annual rate of 372,000. That's the same as in May, which was the highest since April 2010.

In the past 12 months, sales have jumped 25%. Still, the increase is from a historically low level. New-home sales remain well below the annual pace of 700,000 that economists consider healthy.

STORY: Average on 30-year mortgage rises (a tad) to 3.66% STORY: Existing home sales, prices rise in July

One trend holding back sales is that there aren't many newly built homes available. New homes for sale dipped last month to 142,000, the lowest on records dating back to 1963.

The housing market is making a modest but steady recovery in part because homes are more affordable: Mortgage rates have fallen to near-record lows. Housing prices are about one-third lower than at the peak of the housing bubble in 2006. Those trends have helped lift sales of both new and previously occupied homes.

Sales of previously occupied homes increased in July from June, the National Association of Realtors said Wednesday. Sales have jumped 10% in the past year.

Home sales

Other recent reports also point to a recovery. Home prices have begun rising nationwide. They increased 2.2% in May from April, according to one leading index. That was the second straight increase after seven months of flat or declining prices.

Builders, meanwhile, are growing more confident because they're seeing more traffic from potential buyers. An index of builder confidence rose to its highest level in five years in August.

Builders responded by applying for the largest number of building permits in nearly four years last month. They broke ground on slightly fewer new homes in July than in June. But that was after the number of housing starts had reached a 3 1/2-year high in June.

Though new homes represent less than 20% of the housing market, they have a disproportionate 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 statistics compiled by the National Association of Home Builders.

The housing market has a long way to go to reach full health. Some economists forecast that sales of previously occupied homes will rise 8% this year to about 4.6 million. That's still well below the 5.5 million annual sales pace that is considered healthy.

Another factor holding back sales is that many people are still having difficulty qualifying for home loans. Banks have tightened credit standards for mortgages, according to a report last month by the Federal Reserve.

In a separate report, average U.S. rates on fixed mortgages have risen for a fourth straight week, remaining slightly above record lows. Cheap mortgages have helped fuel a modest housing recovery this year.

Mortgage buyer Freddie Mac says the rate on the 30-year loan increased to 3.66%, up from 3.62% last week. Four weeks ago, the rate fell to 3.49%, the lowest since long-term mortgages began in the 1950s.

The average on the 15-year fixed mortgage, a popular refinancing option, edged up to 2.89%. That's up from 2.88% last week and from the record low of 2.8% four weeks ago.

The availability of low rates has lifted home sales higher this year. Prices also have increased, largely because the supply of homes has shrunk while sales have risen.

Builder confidence is also at its highest level since March 2007, according to a survey by the National Association of Home Builders.

The housing market's recovery will likely add to economic growth in 2012 for the first time in seven years. Home purchases, construction and prices are gradually but consistently increasing, though they remain far below levels seen in a healthy economy.

All of which is a big change for the residential real estate industry, which has been a major drag on the economy since the housing bubble burst more than five years ago.

Toll Brothers, a builder of high-end homes, is enjoying its most sustained demand in more than five years.

Still, the housing market has a long way to go to reach a full recovery. The pace of home sales remains well below healthy levels. Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks.

Mortgage rates are low because they tend to track the yield on the 10-year Treasury note. A weaker U.S. economy and uncertainty about how Europe will resolve its debt crisis have led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.

To calculate average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week.

The average does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for 30-year loans was 0.7 point, up from 0.6 point last week. The fee for 15-year loans also increased to 0.7 point from 0.6.

The average rate on one-year adjustable rate mortgages fell to 2.66% from 2.69% last week. The fee for one-year adjustable rate loans was unchanged at 0.4 point.

The average rate on five-year adjustable rate mortgages rose to 2.8% from 2.76%. The fee held steady at 0.6 point.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Posted 8/23/2012 10:07 AM ET
Updated 8/23/2012 6:35 PM ET
A new home with a for-sale sign in Springfield, Ill.
Seth Perlman, AP
A new home with a for-sale sign in Springfield, Ill.