New home sales slip in May

The latest new home sales figures just hit the tape. According to the Census Bureau, sales fell 2.1% between April and May. The seasonally adjusted annual rate of 319,000 was slightly above expectations for a reading of 310,000. Sales fell 3.5% in the West and 26.7% in the Northeast; they were unchanged in the Midwest and up 2.4% in the South.

The raw number of homes for sale keeps falling. It slipped to 166,000 in May from 172,000 a month earlier. That's the lowest level in the history of record keeping, which dates back to 1963. The "months supply at current sales pace" indicator dipped slightly to 6.2 from 6.3. Median prices gained 2.6% on the month to $222,600 from $217,000, but that was still down 3.4% from a year earlier.

Signs of life in the new housing market? Not yet. Sales slumped anew in May, while pricing remained weak on a year-over-year basis. I can't say it enough: We're clearly UNDERsupplied now in the new home industry. But builders have little incentive to build with all the competition they face from nearly-new, distressed homes. That means construction activity and construction hiring will remain anemic, undercutting the economic recovery. Bottom line: The housing market will likely remain lackluster for a period of years, not months or quarters.