The media’s first reaction to the Commerce Department’s new home sales number was, in almost every case, positive. That was a mistake.
New home sales rose to a seasonally adjusted annual rate of 330,000 in June. Most analysts expected that number to be closer to 315,000. May numbers were worse than had initially been announced–by a great deal. New home sales fell a revised 36.7% two months ago to a record low 267,000 level. The previous estimate was a 32.7% fall to 300,000.The June numbers could be revised lower as well. Analysts attributed the May drop to the expiration of federal tax credits for buyers of new and existing homes. The months that follow May are not likely to get better and as the year wears on, could get worse.
The headwinds for an improvement in housing continue to be high default and foreclosure rates, unemployment, and concerns that home prices could fall further. Inventory in particularly hard hit regions is not contracting, and contraction in other areas of the country is barely visible if it is visible at all.
The most worrying litmus test for housing is that mortgage rates are at all-time lows. Even this has not enticed buyers back into the market. Housing will not improve soon. It could drop another 15% to 20% and it will take that to turn the dynamics of transactions back toward the sellers, even if those sellers are more desperate than they are today.
Douglas A. McIntyre
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