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U.S. new home sales fall; weekly jobless claims rise

By Lucia Mutikani

By Lucia Mutikani

WASHINGTON (Reuters) - New U.S. single-family home sales fell to a 10-month low in December after three straight months of solid gains, but the housing market recovery remains intact as a tightening labor market boosts wage growth.

While other data on Thursday showed a bigger-than-expected increase in the number of Americans filing for unemployment benefits last week, the four-week moving average of claims dropped to levels last seen in 1973.

There was also good news on the economy with the goods trade deficit falling in December as exports rose. With trade expected to have weighed on economic growth in the fourth quarter, last month's rise in exports bodes well for output in early 2017.

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The Commerce Department said new home sales dropped 10.4 percent to a seasonally adjusted annual rate of 536,000 units last month. Economists polled by Reuters had forecast single-family home sales, which account for 8.9 percent of overall home sales, slipping 1.0 percent.

Many economists did not believe that the decline in sales was in response to a recent run-up in mortgage rates as applications for loans to purchase houses rose in December. A homebuilders survey also showed strong sales gains last month. Cold weather could have impacted on sales.

"December's decline is probably mostly a result of volatility rather than a drop in the underlying fundamentals for housing demand, despite the rise in mortgage rates," said David Berson, chief economist at Nationwide in Columbus, Ohio.

New home sales, which are derived from building permits, are

volatile on a month-to-month basis and subject to large revisions. Sales increased 12.2 percent to 563,000 units in 2016, the highest since 2007.

With the labor market considered as being at or near full employment, and pushing up wages, demand for housing is likely to remain supported. But a chronic shortage of properties for sale remains an obstacle to a robust housing market.

A report from the National Association of Realtors on Tuesday showed the supply of previously owned homes for sale dropped to a 17-year low in December.

The PHLX housing index <.HGX> rose 0.67 percent on Thursday amid expectations that homebuilders would need to ramp up construction to meet demand for housing. Shares in the nation's largest homebuilder, D.R. Horton <DHI.N>, gained 0.54 percent. and Lennar Corp <LEN.N> climbed 0.53 percent.

Shares in PulteGroup <PHM.N> surged 5.11 percent as the No. 3 homebuilder reported higher-than-expected quarterly profits, which were boosted by an increase in home sales and prices.

The dollar was trading higher against a basket of currencies. Prices for U.S. government debt fell, with the yield on the benchmark 10-year Treasury note rising to a four-week high.

RISING MORTGAGE RATES

The fixed 30-year mortgage rate increased 43 basis points in December from November to an average of 4.20 percent, the highest since April 2014, according to data from mortgage finance firm Freddie Mac.

Further increases are likely as the Federal Reserve has forecast three rate hikes this year. The U.S. central bank raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent.

Last month, new single-family homes sales rose 48.4 percent in the Northeast to their highest level since January 2008. They fell in the Midwest, the South and the West.

The inventory of new homes on the market increased 4.0 percent to 259,000 units, the highest since August 2009. New housing stock, however, remains less than half of its peak during the housing boom.

According to Jonathan Smoke, chief economist at realtor.com, the acute shortage of previously owned homes has not been a boost to the new housing market because of supply constraints facing builders, including labor, land and finance.

"New home sales will likely outpace single-family growth as builders sell more homes that haven't been started, but supply-side constraints will likely keep that growth to single digits in 2017," said Smoke.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 259,000 for the week ended Jan. 21. Claims have now been below 300,000, a threshold associated with a healthy labor market, for 99 consecutive weeks.

That is the longest stretch since 1970, when the labor market was much smaller. Last week's data included the Martin Luther King Jr. holiday, which could have impacted on the data. Claims tend to be volatile around this time of the year because of different timings of the various holidays.

"Through the volatility they continue to show no sign of an uptrend," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. "We believe the trend in employment growth remains quite strong, more than strong enough to keep the unemployment rate trending down."

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,000 to 245,500 last week, the lowest since November 1973.

In another report, the Commerce Department said the goods trade deficit fell 0.5 percent to $65.0 billion in December. Goods exports increased $3.7 billion to $125.5 billion. The rise outpaced a $3.4 billion gain in imports.

Economists expect trade to have subtracted at least 1.5 percentage points from GDP in the fourth quarter reversing a 0.85 percentage point contribution the prior quarter.

The export drag will likely come from a decline in soybean shipments, after they provided a huge boost to growth in the third quarter. The government will publish its advance fourth-quarter GDP estimate on Friday.

According to a Reuters survey of economists, GDP likely increased at a 2.2 percent annualized rate in the fourth quarter after a surging at a 3.5 percent pace in the July-September quarter.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)