New Homes Struggle for Market Foothold

U.S. builders continue to face challenges in acquiring construction funding, obtaining proper housing appraisals for new homes and competing with foreclosed property prices in the housing market, contributing …

U.S. builders continue to face challenges in acquiring construction funding, obtaining proper housing appraisals for new homes and competing with foreclosed property prices in the housing market, contributing to a new-home sales slump of 2.3% in August. The National Association of Home Builders reports that homebuilder confidence has slipped from its longstanding position at 15 to 14 despite a rise of 3.2% in building permits. Anything below 50 on the scale indicates a negative outlook and has not been above 50 since 2006. Industry observers say it will take a significant shift in sales and construction opportunities for confidence to return. For more on this continue reading the following article from The Street.

Sales of newly built homes fell 2.3% in August to a seasonally adjusted annual rate of 295,000, the Commerce Department said early Monday, essentially in line with economists’ expectations.

The figure was expected to come in at a rate of 293,000, according to consensus estimates at, after a revised July rate of 302,000 new-home sales. July’s new-home sales figure was originally reported at an annualized rate of 298,000.

Despite coming in just slightly worse than expected, August’s new-home sales rate was 6.1% higher than year-earlier figures.

The median sale price of new homes sold last month was $209,100; the average sales price was $246,000. On a seasonally adjusted basis, there were 162,000 new homes for sale at the end of August, representing a 6.6-month supply at the current sales rate.

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Data released earlier this month showed that homebuilders began construction on 5% fewer homes in August, a weaker-than-expected rate, though applications for building permits rose 3.2% to the highest rate this year pointing to the possibility for some sense of stabilization in the home construction market. Even so, the National Association of Home Builders (NAHB) reported that homebuilder sentiment fell in September to a reading of 14, lower than the 15 economists had expected. Any reading below 50 indicates that more builders view market conditions to be unfavorable than those who view it favorably. The index has not been above 50 since the spring of 2006.

“Very little has changed in terms of housing market conditions so far this year,” NAHB Chairman Bob Nielsen said last week. “Builders continue to confront the same challenges in accessing construction credit, obtaining accurate appraisal values for new homes, and competing against foreclosed properties that they have seen for some time.”

Sales of previously occupied homes did rise more than expected last month — climbing 7.7% to their highest level in five months at an annualized rate of 5.03 million units — thanks to falling home prices and interest rates that remain near record lows, but the news has done little to sway market watchers that the housing sector is doing anything but bouncing along the bottom.

“This housing market is still very distressed,” Bank of America Merrill Lynch economist Michael Hanson told Reuters. “We have to get a lot of good news for a meaningful turnaround in the housing market.”

Two new housing reports are due out later this week offering the next round of data. On Tuesday, the S&P/Case-Shiller 20-city index of national home prices is expected to show that home prices fell another 4.5% in July, while the National Association of Realtors will likely report that pending home sales — which measures the number of contracts signed to buy previously owned homes — fell 1.5% in July.

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

Among individual builders, PulteGroup(PHM) gained 0.3% and D.R. Horton(DHI) rose 0.3%. Lennar (LEN), largely considered a leader among the homebuilders, fell 0.2%, Toll Brothers(TOL) gave up 0.6% and small-cap builders KB Home(KBH) and Ryland Group(RYL) shed 0.7% and 0.8%, respectively.

This article was republished with permission from The Street.


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