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Interest rates spook housing market

Clearly feeling the impact of rising interest rates, the overall housing market took a hit in June, with only sales of older and generally less expensive homes still climbing, while sales of more expensive new homes and housing starts both declined.

Sales of existing homes, by far the largest segment of the broad national housing market, improved for a fifth straight month in June, the National Association of Realtors reported, increasing 2.1 percent to a seasonally adjusted level of 6.95 million units, and climbing from an upwardly revised level of 6.81 million units in May.

"Although we've been expecting sales to ease, it's clear the market has tremendous momentum," said David Lereah, chief economist of the National Association of Realtors. "The improving job market and higher consumer confidence are feeding into a large demographic demand for housing. It's unlikely that we'll top the pace in June, but home sales remain very healthy and are likely to stay quite strong, even with some easing expected in the second half of the year."

But the good news stopped with sales of existing homes, as other market segments lost ground in June. Sales of costly new homes — a highly volatile market given to wide swings — dipped 0.8 percent in June to a seasonally adjusted level of 1.3 million units. Sales were soft across much of the country, increasing only in the South, where sales rose 9.6 percent. Declines were most pronounced in the Northeast and West, tumbling 14.2 percent and 13.1 percent respectively. New home sales fell 2.9 percent in the Midwestern states.

Notably hard hit in June, and sliding for a third straight month, were housing starts, the most forward-looking component of the market. Starts fell 8.5 percent, to a seasonally adjusted annual rate of 1.8 million units from a revised May level of 1.97 million units, the U.S. Department of Commerce reported. Housing starts have now fallen 12.8 percent from a 13-month high of 2.1 million units recorded in December.

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast 2.8% -3.5% -14.2%
Midwest 3.5 -11.5 -2.9
South 0.4 -3.1 9.6
West 3.1 -16.5 -13.1
Source: U.S. Department of Commerce and National Association of Realtors

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