New Home Sales Still Falling

Sales of new homes did not meet expectations for the month of July and industry professionals are taking it as a sign of more trouble to come as …

Sales of new homes did not meet expectations for the month of July and industry professionals are taking it as a sign of more trouble to come as a housing market recovery remains elusive for the U.S. The National Association of Home Builders index of homebuilder sentiment, which measures expectations for construction of new homes in the next six months and considers anything below 50 to be a poor outlook, continues to sit at 15. Analysts blame high unemployment as the root cause of the struggling market, which keeps both builders out of jobs and buyers without money. This combined with an oversaturated market of resale and distressed homes make it almost impossible for new homes to gain any traction with buyers. For more on this continue reading the following article from The Street.

Sales of newly built homes dipped 0.7% in July to a seasonally adjusted annual rate of 298,000, the Commerce Department said early Tuesday, disappointing economists’ expectations as the key figure fell for the third consecutive month to a five-month low.

The figure was expected to come in at a rate of 310,000, according to consensus estimates at, after a revised June rate of 312,000. June’s new-home sales figure was originally reported at a rate of 310,000.

Despite coming in worse than expected, July’s new-home sales rate was 6.8% higher than year-earlier figures.

The median sale price of new homes sold last month was $222,000; the average sales price was $272,300. On a seasonally adjusted basis, there were 165,000 new homes for sale at the end of July, representing a 6.6-month supply at the current sales rate.

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The housing market is still a ways off from any sense of real recovery as potential buyers remain cautious, home inventories remain high and building activity remains sluggish, according to an analyst with the Credit Union National Association.

“Unfortunately, none of the data we see suggest that there will be a significant turnaround anytime soon,” Mike Schenk, vice president of economics and statistics with CUNA, told TheStreet recently. “While mortgage interest rates are near all-time lows and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected … and permit activity suggest very little new construction on the horizon.”

Data released earlier this month showed that homebuilders began construction on 1.5% fewer homes in July while applications for building permits fell 3.2%. The National Association of Home Builders (NAHB) reported that homebuilder sentiment held steady at a low reading of 15 in August as the usual suspects — an oversupply of homes, inaccurate appraisal values and tight lending — kept home purchasers at bay.

“Extreme and prolonged weakness in labor markets are the key underlying feature of housing market weakness” with the true unemployment rate — including the underemployed and part-time workers looking for full-time work — near 16%. The “glut of empty homes on the market” — around 2 million — plus what is known as the “shadow inventory,” or homes kept off the market because owners don’t think they will sell in the current environment, adds another 2 million to 2.5 million vacant homes, Schenk estimated.

Last Thursday, the National Association of Realtors reported that sales of previously occupied homes unexpectedly fell 3.5% in July as potential homebuyers cancelled more contracts.

“Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” said NAR chief economist Lawrence Yun. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

Stocks in the homebuilder sector were mixed Tuesday morning, including the SPDR S&P Homebuilders(XHB) and iShares Dow Jones US Home Construction(ITB) exchange-traded funds that tracks the sector. The ETFs remain around 70% and 80%, respectively, off their early 2006 peaks.

Among individual builders, PulteGroup(PHM) lost 1.3%, Toll Brothers(TOL) fell 0.2% and small-cap builder KB Home(KBH) shed 1.8%. Lennar (LEN), largely considered a leader among the homebuilders, added 0.5%, D.R. Horton(DHI) rose 0.5% and Hovnanian Enterprises(HOV) shares were flat.

This article was republished with permission from The Street.


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