New home sales plunge 13.4%

• New home sales drop to 394%2C000 annual rate%2C missing expectations
• Median price rises %247%2C500 in last month to %24257%2C200

New home sales plunged 13.4% in July, in one of the first signs that higher mortgage rates may be cutting into home demand.

Sales fell to a seasonally adjusted rate of 394,000 a year, from 497,000 in June, the Census Bureau reported Friday. Analysts' consensus estimate was 487,000.

Sales were 6.8% higher than last July.

The median price was $257,200, up from $249,700 last month, and there were 171,000 homes for sale at the end of July, representing a five-month supply at the current sales pace, Census said.

The report was concerning because sales fell even though more homes were for sale, said Jed Kolko, chief economist at real-estate Web site Trulia.com. Previously, new home sales have stayed well short of pre-recession highs because of a shortage of homes on the market.

``I think we can chalk it up to higher rates,'' Moody's Analytics economist Greg Bird said. ``This was going to be the month you would see it.''

The drop in sales appears to be coming from weaker demand, rather than tighter supplies, especially because inventories of homes for sale rose, Kolko said.

Next month's report on sales of existing-home sales will help make clear whether rates are curbing buyers' appetites, he said. Existing home sales beat expectations in July, but they reflect closed deals that were made earlier, because of the time needed to arrange mortgages and other details.

Last month's new home sales figures are based on contracts signed in July so the impact of recent interest rate increases shows up sooner.

Interest rates on 30-year mortgages have risen more than a percentage point since May, though they remain very low by historical standards. Freddie Mac said Thursday that the average fixed-rate, 30-year mortgage carries a 4.58% interest rate, up from 3.35% before Federal Reserve Chairman Ben Bernanke hinted that the central bank would slow down its $85 billion in monthly bond purchases, which have pushed down rates.

But the jump since May means the monthly payment on the average new home, which cost $322,700 last month, has risen more than $180 to $1,327, according to Bankrate.com. Payments on the median-priced house are $146 higher than they would be at rates from early May.

These estimates assume a 20% down payment, the average and median new-home prices reported for July, and use the national average interest rate for May and for last week.

The economy's hopes for a sharp rebound in jobs depend largely on how quickly home construction can move toward a more normal pace of 1.7 million new homes a year. That figure, unlike the numbers released Friday, includes apartment construction, Moody's Analytics said in a report last week. Total housing starts reached an annual rate of 896,000 in July, according to Census.

Housing construction has been held down by tight credit and by people delaying forming new households because of the economy, and the gradual easing of those problems has been leading to more homes being built, Moody's said.

Housing starts and building-permit data have been much stronger than July's sales figures, suggesting that investors and home buyers should wait before concluding the housing recovery is in trouble, economist Joel Naroff said.

"This was an ugly report,'' Naroff said. "But we need to be cautious when there is such a large fall off in demand with no real supporting data. It is hard to understand why developers would pay for permits, start construction and feel that conditions are getting better if people are not signing up for their product. So let's wait a month to see if this was just a glitch in the data or a real trend.''