* New home sales surged yet again, by 9.6% to a seasonally adjusted annual rate of 433,000 from an upwardly revised 395,000 in June. That was better than the average forecast of economists polled by Bloomberg, who were expecting 390,000 sales. Regionally, sales gained in three out of four areas of the country. They rose 1% in the West, jumped 16.2% in the South, and surged 32.4% in Northeast. Sales fell 7.6% in the Midwest.
* The raw number of homes for sale continued to decline, falling to 271,000 from 280,000 in June. That’s the lowest reading going back to March 1993. The months supply at current sales pace indicator of inventory dropped to 7.5 from 8.5.
* The median price of a new home dipped slightly to $210,100 from $210,400 in June. On a year-over-year basis, prices fell 11.5% from $237,300.
July was another month of improvement in housing. Not only did sales come in much hotter than expected, but the raw supply of new homes for sale dropped to its lowest level in more than 16 years.
Overall supply levels remain high, once you factor existing homes into the mix. We’ll be dealing with a continued influx of foreclosed property over the next 12-18 months, too. But this is clear evidence the dramatic cut back in housing starts, plus increasing consumer confidence and the targeted tax cut for first-time buyers, is restoring stability to the new home market.
{ 4 comments… read them below or add one }
Mike if it is very difficult to get financing, then who is coming in and buying houses now? Cash buyers of course. Cash buyers are investors and flippers. I think the froth of sales are just bargain hunters. If I’m correct, and 90% plus of the buyers are just flippers/investors, isn’t this little mini-excitement going to have a nasty surprise ending soon?
As far as new home inventories being at multi-years low, no wonder! There is no one building new homes unless they were under contract before these buyers really understood the size of the crisis. It’s insane to contract a new home now, when you can buy an existing home at a HUGE discount to a new home.
Another example… I see two large luxury towers outside my window. Both were started, and contracts signed BEFORE the crisis. Now two years later, they are finished and EMPTY. Buyers are balking and walking away from their deposits. These disasters have yet to hit the banks holding the loan for the developer. I see projects like these hitting the fan soon too.
I know you called a turn-around in housing, but maybe it was premature? Any thoughts? Thanks for your insights.
Mike Larson Reply:
August 28th, 2009 at 10:45 AM
I disagree that it is all investors. REAL buyers are stepping up because affordability has been restored to historical averages in many markets. The teacher, firefighter, policeman, etc. who couldn’t buy a house except with one of those stupid option ARM loans can now buy with a 30-year fixed at a reasonable multiple of income. Sure, the market isn’t seeing a DRAMATIC turnaround. And no, I don’t believe PRICES have stopped falling. But to deny what is before our very eyes just doesn’t make sense.
P.S. Rather than reproduce charts that PROVE my point, I would refer you and anyone else who is interested to the charts available at Calculatedrisk.com: http://www.calculatedriskblog.com/2009/08/house-prices-real-prices-price-to-rent.html You’ll see in graphical format what I am talking about.
Yes, and what were the year over year comparisons. Please be more even handed in your headlines. You’ll start to remind us of the national media. Everyone paints these one and two month blips as the bottom and as we all know this does not a trend make.
Mike Larson Reply:
August 28th, 2009 at 10:42 AM
I have never read more disbelief about a single call of mine in years … except when I called the top in housing in 2005. I find it noteworthy that no one believed me then about the top, and no one seems to want to believe me now about a stabilization. What you guys are missing is that many of the imbalances that made it all but certain housing would crash have been corrected. All those ratios (monthly mortgage cost vs. monthly rent, house prices-to-incomes, etc.) that made no sense are now back in line with historical averages. REAL buyers are stepping in now. Inventory is coming down (new home inventory lowest since 1993). It won’t be a great recovery. But we are stabilizing. Anyone who doesn’t see that is simply not rationally looking at all the evidence.
Your comments about the housing market stabilization are not correct. It is based on government programs, interest rates pushed down; artificial factors. On it’s on without this assistance the market would still be in a free fall. When the market functions on it’s own, you can call it stabilization. Also, there are many more foreclosures coming as ARMs continue to reset and a ton of unsold inventory. Also, June/July are typically higher sales months anyway, but the number of sales is way below last year. All this “good news” is nothing but BS. The employment situation must improve for housing to correct.
I can tell you there are LOTS of headlines that agree with your assessment of the recovery in the housing market, and a stock market that agrees with you too.
Of course you are the expert but it is still difficult to get a grip on this situation in real life… For example because of what I see outside my window (empty luxury towers) with banks holding the construction loans.
Plus, if you try to buy a house say.. between $100,000 and $200,000 (formerly $200,000 to $400,000) near my area, you drive up to the property and almost 100% of the time, there is a BMW or a Mercedes sitting out front with a flipper/investor inside having a bidding war with another flipper/investor. The car is almost worth as much as the house so I assume they don’t plan on living there.
I don’t think there is any way this can be calculated in the housing market sales figures. So I take them with a huge grain of salt.
Plus, this nightmare is so hard to figure out when the government is taking all the toxic assets off the market too. Are they giving away these properties? If so, then the sales numbers will look good.
It goes back to the idea that the government seems to be able to print and borrow enough money to stop all our disasters. Even the real estate disaster.
How long can it go on? The answer seems to lie in how long can we keep issuing debt (and printing money). That seems to be almost an unlimited supply of buyers for the trillions needed which shocks me.
Can the Treasury and the Fed cover the upcoming disasters in commercial property too???
I am prone to believe real estate (commercial and residential) will still be what breaks the backs of banks and send the stock market into a steep dive again. I feel the problem has not gone away, but I understand you now tend to think it won’t be the back-breaking issue in the future. I guess only time will tell.
Thanks again for your analysis.