Behind The New-Home Sales Data

Posted In: Housing, Mortgages

The U.S. Commerce Department estimated Friday that sales of new homes increased 2.8% in July to a seasonally-adjusted annual rate of 870,000 as the inventory of homes for sale dropped for a fourth straight month. Economists had been looking for sales to decline to a rate of about 825,000, a level that would have been a seven-year low. “Our expectations are so low that we get excited about” a number such as 870,000, said Art Hogan, chief market strategist at Jefferies & Co., an investment banking and institutional securities firm. “It’s all relative right now,” he told MarketWatch today. Wall Street shared in the excitement, where the stock market closed sharply higher due in part to the upbeat news coming from the housing market.

And the most likely reason behind July’s increase in new-home sales? It’s not that the U.S. housing market is improving. Rather, home builders have been cutting prices and/or offering non-price sales incentives to move inventory. As a result, the average price of a new home sold in July fell to $300,400, down 3.4% from a year earlier. The median price edged up 0.6% to $239,500 from a year earlier but it’s still off 8.8% from the record high hit in March 2007. In the latest survey by the National Association of Home Builders, almost 3/4 of builders surveyed reported offering extras, such as paying for closing costs or adding features for free.

Perhaps Wall Street shouldn’t get too excited about the latest sales numbers. The pace of new-home sales is still off 10.2% from a year ago. Economists are also predicting that recent problems in the secondary market for mortgages, where subprime mortgages and “jumbo mortgages” are tougher to get, will weigh on future sales numbers. “We were in a slightly stronger position going into this latest hurt than we thought we were. That’s the good news,” said Bill Hampel, Credit Union National Association’s chief economist. “But this is probably the last bit of good news we’ll get from this market for a long time,” he told CNN Money today.

We’ll just have to wait until Monday when the existing-home sales data is released…

Sphere: Related Content