New home sales slump to lowest rate since Oct.

WASHINGTON — Sales of new homes slumped in July with all regions seeing sizable drops, raising questions about the recovery in the housing market.

New-home sales fell 13.4 percent to a seasonally adjusted annual rate of 394,000 in July, the lowest rate since October, the U.S. Department of Commerce reported Friday.

Rising mortgage rates may be behind July’s drop, though the monthly data are quite volatile and economists had expected some pullback after sales gains in recent months.

Longer- term trends point to continuing growth: New-home sales in July were up 6.8 percent from the year-earlier period.

“This was an unambiguously weak report, and it reflects in part some of the negative impact of higher mortgage rates,” said Millan Mulraine, director of U.S. research and strategy at TD Securities.

Economists polled by MarketWatch had expected a July sales rate of 485,000. On Friday, the government revised June’s rate to 455,000.

By region, monthly sales fell 16.1 percent in the West, 13.4 percent in the South, 12.9 percent in the Midwest and 5.7 percent in the Northeast.

Earlier this week, a report from the National Association of Realtors showed that existinghome sales in July jumped to their highest level since late 2009, as buyers looked to lock in mortgage rates before they rise further.

Taken together, the data on sales of new and existing homes illustrate a mar- ket that continues to post year- over-year growth thanks to pent-up demand and relatively low interest rates. Indeed, economists expect residential investment to continue to contribute to economic growth this year.

But there’s concern about the bite that rising rates will take out of demand. Since early May, the average rate for the 30-year fixed-rate mortgage has increased more than 1 percentage point. As the Federal Reserve starts winding down its massive bond-buying program, a tapering that could start this year, rates will continue to rise, forcing some would-be buyers to scale back purchase plans.

Rising rates aren’t the only head winds facing consumers and builders. Slow employment growth is also hampering sales as buyers are wary of forming new households. Also, relatively low inventories are heating up competition and prices, making it tough for first-time owners to participate in the market.

Also Friday, the government reported that the median price of new homes ticked down to $257,200 last month, but was up 8.3 percent from the yearearlier period. The supply of new homes on the U.S. market in July jumped to 5.2 months at the current sales pace — the highest since January 2012 — from 4.3 months in June.

“The sharply weakerthan-expected sales in July was the lowest so far this year, and could be a sign that higher interest rates really are affecting the U.S. housing recovery,” wrote Andrew Grantham, an economist at CIBC World Markets, in a research note.