We just got data on new home sales for June. Here’s what the figures looked like:
* New home sales rose 23.6% to a seasonally adjusted annual rate of 330,000. That topped the average estimate of 310,000 units. Sounds like a big rise … until you see that the previous month’s sales were revised sharply lower to 267,000. A net 62,000 homes were actually lopped off the sales tally for the past three months, and the June number was still the second-worst reading on record.
* Regionally, sales were up in three out of four locations. The Northeast showed the biggest gain at 46.4%, followed by the South at 33.1%. Sales rose 20.5% in the Midwest, but dropped 6.6% in the West.
* The number of homes for sale dipped to 210,000 from 213,000 in May. That’s the lowest level in any month going all the way back to September 1968. The months supply at current sales pace indicator of inventory slipped to 7.6 from 9.6. The median price of a new home slipped 1.4% to $213,400 from $216,400 in May.
New home sales picked up a bit in June. But it was still the second-worst month in U.S. history. Moreover, revisions to previous reports show home sales have been running at even more depressed levels than we thought. That makes it hard to get too excited about these figures.
If there’s a bright spot, it’s that new home inventories remain extraordinarily lean. We have fewer houses looking for buyers than we’ve had at any point in the last 42 years. But even that ostensibly good news comes with an asterisk. Because we have so much competition from the distressed, “used” home market, home builders aren’t able to ramp up pricing in response. All in, I expect the housing market to remain challenging for some time, especially given the ongoing weakness we’re seeing in the labor market.
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Beyond the risk of a double dip recession, I think the biggest short-term risk to housing prices is shadow inventory. As more of these foreclosures that have been held off the market due to high hopes the bank had for modifications hit the market, we will see inventories rise. Unfortunately, come Septemeber, we will no longer have the homebuyer tax credit and summer buying season to support this increased supply.
Mike,
I just read today’s article regarding the counter-intuitive market responding positively to dire news. You mention investor sentiment, however my take is that the lion’s share of market volume these days are coming directly from the broker-dealers and banks themselves, either trading on their own accounts or their underlying ETFs. I don’t believe there have been very many private investors influencing the market for at least two years. This begs the question: Is this a manipulated market, and are investors rushing to safety in recognition of the fact that this ia all a mirage, bound to be discovered and discredited?
Why exactly is this a surprise? Who is going to rush in a buy a home that is decreasing in value? There are a few reasons to buy a house and one of them is to not lose money. Until home prices stop falling and when they start to rise again that’s when you will see people buying houses again. Once they start to increase in value at a rate exceeding inflation then they becom an investment too. And for some that’s the motivating factor. It shouldn’t be but it is.
As a Realtor in the midwest, I do believe the June rise in new home sales is a result of the number of closings from the last minute push to purchase prior to the April 30th deadline for the home buyer tax credit. It will be interesting to see how the July numbers compare.