New Home Sales Actually Show Signs of Recovery

For months, we’ve watched analysts swing and miss as they try to predict the bottom of the housing crash. We still aren’t seeing any sign of a turn in existing home sales, but Friday’s new home sales numbers were actually encouraging.

New home sales are a small slice of the overall housing market, and. unlike existing homes, they have a built-in supply constraint: When times get rough, builders stop building so many (this has happened in spades). But, still, this is good news. Asha Bangalore of Northern Trust:

Sales of new homes increased 0.6% to an annual rate of 530,000 in June, after a downwardly
revised decline of 1.7% in May. Estimates of new home sales during March – May were revised
up noticeably. The upward revision and small decline, on a monthly basis, are both positives. On
a regional basis, sales of new homes rose in the Northeast (5.3%) and Midwest (+2.5%) but fell in
the South (-2.0%) and West (-0.9%).

On a year-to-year basis, sales of new single-family homes fell 32.9% in June, a smaller decline
compared with the prior months (see chart 2). This is the second positive aspect. The largest
decline in the current cycle appears to have occurred in April 2008 (-40.96%).

Other positive aspects of Friday’s report:

  • Inventories down to a 10 month supply from 11.2 months in March (the cycle peak)
  • The number of new homes completed has now turned negative–down 6.1% in May. Supply (of new homes) is therefore now shrinking.
  • The median price fell only 2% year over year, versus 7% in May and 12.7% in March.
  • The percentage fall-off from the peak of the market (June 2005) is now narrowing. We’re 61.8% off the peak (1.389 million units), versus dwn 63.1% in March. This rate of decline is far beyond the average cyclical decline from 1969-2001.

 

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