New-Home Sales Stumble to Second Lowest Level Since 1963
It was, to paraphrase Shakespeare, the summer of our discontent in the U.S. housing sector: August's new-home sales clocked in at a 288,000-unit annual rate, unchanged from July's revised rate, and the second lowest level in 47 years.
The consensus prediction of economists surveyed by Bloomberg had been that new-home sales would rise to a 290,000-unit annual pace in August. New homes sales were revised to 312,000-unit and 282,000-unit paces in June and May, respectively, making the May level the new all-time low.
After plunging about 30% in May following the expiration of the federal government's home buyer tax credit on April 30, sales flat-lined this summer at a roughly 295,000-unit average annual pace -- suggesting that the home buyer credit was responsible for a substantial portion of the early-2010 sales gains.
The summer swoon is all the more distressing because summer historically has been a strong sales period for both new and existing homes. Existing home sales fell about 25% this summer.
Sales Heated Up on the Coasts
New home sales are now down 28.9% in the past year, and off about 64% from the average 800,000-unit annual rate that prevailed during the Roaring 1990s, a period of strong U.S. GDP growth and job growth.
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New home sales are also about 74% below the average 1.1 million-unit annual rate recorded during the 2002-2007 real estate bubble, but almost no economist expects the housing sector to return to that lofty, problematic-mortgage-fueled level, due to weaker household formation.
One August bright spot: Home inventories dipped to an 8.6.-month supply at the current sales pace, down from a revised 8.7-month supply in July. Even so, inventories are still well above normal levels of three to five months.
The August sales results also showed a significant location-based dichotomy: Sales rose on the coasts, but fell in the interior sections of the country. Sales rose 16.7% in the Northeast and surged 54.3% in the West, but plunged 26.1% in the Midwest and declined 10.8% in the South. The median sales price was $204,700, a 1.2% decline from a year ago, but better than the 4.8% year-over-year decline recorded in July.
Housing Sector's Problem: Too Few New Jobs
August's new home sales report shows a U.S. housing sector that does not contain enough organic demand to push sales higher in a sustained way.
In addition, the August data also suggests the new home sale market will need at least three quarters, perhaps longer, to return to a normal 700,000-unit to 800,000-unit annual rate.
To be sure, the U.S. economy is capable of returning to new home sales in the 700,000-unit annual range, if adequate, sustained job growth of 175,000 to 200,000 jobs per month occurs, as job creation of that size would increase household formation, sparking demand for housing.
However, so far the expansion has not created anywhere near that many jobs per month, and if that trend continues, housing sales will continue to underperform.
