Interest Rate Roundup

Wednesday, March 26, 2008

New home sales slip in February

We got a glimmer of hope in the February existing home sales report -- namely, that buyers actually responded to price cuts by dipping a toe back in the water. Did the new home market show something similar? Not really. Here's the recap ...

* Sales fell 1.8% to a seasonally adjusted annual rate of 590,000 in February from a revised 601,000 in January (previously reported as 588,000). That was a bit better than the forecast of 578,000 home sales. From a year earlier, sales were down 29.8%. That leaves them at the lowest since February 1995.

* The supply of homes for sale dipped again to 471,000 in February from 481,000 in January and 544,000 a year earlier. On a months supply at current sales pace basis, inventory was unchanged from January at 9.8 months, but up from 8.1 months in February 2007. That's the highest since October 1981 (10.3 months).

* Median home prices jumped 8.2% to $244,100 last month from $225,600 in January (previously reported as $216,000). However, they fell 2.7% from $250,800 a year earlier.

The new home market continued to struggle last month, with sales volume slumping again and inventory remaining elevated, especially when measured on a "months supply" basis. The raw number of homes for sale is falling, however, as builders cut back aggressively on new construction. And the latest upswing in mortgage application activity is exactly what the industry wants to see.

The key question going forward: Will this short-term sales momentum hold through the heart of the spring selling season? On the one hand, tighter mortgage lending standards, slumping consumer confidence, and the worsening job market argue for weaker sales. On the other hand, the recent moves to raise jumbo loan limits in certain high-cost areas and to expand the FHA loan program should help some potential buyers. The other steps aimed at restoring liquidity in the secondary mortgage market have also temporarily calmed twitchy bond investors. We'll have to see if it sticks.

If there's one thing that is clear to me, it's this: Sellers will have to continue lowering prices to attract buyers. That is what is driving demand in this glutted housing market.


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