New Home Sales Lagged in May, So What's Next?
Sales of new homes went into a freefall in May without the government's artificial lifeline. No wonder homebuilders were feeling so glum in June. Analysts were expecting a dip in the housing market, but nothing this bad.
New home sales dropped 32.7 percent from April, the Commerce Department reported, and 18.3 percent from the year before, to a seasonally adjusted rate of 300,000 units. That's the lowest level since the government started tracking home sales in 1963.
Not surprisingly, people are now starting to worry again about the threat of a double dip in the housing market.
Where are things headed now?
"We don't have enough job growth to adequately supporting housing," says Mike Cosgrove, principal at research firm Econoclast.
That's the tune on everyone's mind today: No jobs equals no housing recovery.
It is important to note that the new-home sales slump is not affecting all areas equally: The West was hit hardest: The seasonally adjusted annual sales rate dropped 53.2 percent month-to-month and 43.3 percent year-over-year. The South came in second with a 25.4 percent month-to-month decline and 16.7 percent year-over-year.
The Northeast and Midwest fared a good bit better, with both areas registering year-over-year growth: 12 percent and 6.3 percent, respectively. But month-to-month sales were down in both regions by 33.3 percent and 23.9.
Let's see how long it takes for everyone to start lowering their predictions for the rest of the year.
In some quarters, sentiment started souring before this morning's report. Meredith Whitney, famous Wall Street bear, told CNBC yesterday that there's a risk for a double dip in the housing market. MacroMarket's monthly survey also turned negative this morning: The real estate experts they polled are forecasting a small dip in prices this year, after previously indicating prices would remain steady.
It seems like people finally are getting a dose of reality about the housing market, at least for a brief moment while the government keeps its fingers out of
"The housing recovery will take years. People's net worth has been dramatically reduced."
By the way: The new-home-sales numbers are especially valuable, because they measure contract signings -- not closings -- that took place in May, which means they captured demand unaffected by the housing credit. The May existing homes sales data released yesterday, by contrast, was still buoyed by the credit because it measures closings; the tax credit expired at the end of April but buyers have until the end of June to close.
If there's any silver lining, it's that the large drop in new-home sales in May came off a remarkable 30.8 percent rise in new-home sales in April. Hopefully, the numbers will reach something of an equilibrium in the coming months.
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