Interest Rate Roundup

Tuesday, June 26, 2007

New home sales for May

Data on the new home market in May just hit the tape. What did it show?

* Sales fell 1.6% to a seasonally adjusted annual rate of 915,000 from a revised 930,000 SAAR in April (previously reported as 981,000). That was "better" than economists' forecasts for a 5.9% drop.

But the "beat" stems from the fact last month's big number was revised down sharply. If the April number stayed the same at 981,000, the drop would have been 6.7%. The actual SAAR -- 915,000 -- was below the actual forecast number -- 924,000. In other words, sales were weak. On a year-over-year basis, May sales were down 15.8% from 1.087 million in May 2006.

* For-sale inventory came in at 536,000 new homes. That was down 1.1% from 542,000 in April and 5% from 564,000 in May 2006. On a months supply at current sales pace basis, inventory was 7.1 months, up from 7 in April and 6.2 a year earlier.

* Median prices rose 1.5% to $236,100 in May from $232,700 in April. Prices were down 0.9% from $238,200 in May 2006, however.

So how did the new home market perform in May? Better than the existing home market at first glance. Sales were down a bit, but still off their March cycle low. We also saw a slight improvement in the inventory picture, at least when you measure it in terms of raw units for sale. And to top it all off, median prices were down by a much smaller year-over-year margin this month (-0.9%) than last month (-9.5%).

Unfortunately, the nationwide supply glut in the new home market is still extremely large -- we have about 150,000 more new homes on the market now than at any time in the last two and a half decades. Other indicators, like the record-high vacancy rate for U.S. homes, also suggest we have quite a few excess homes to work through before prices and home construction pick up meaningfully. Lastly, there are troubling indicators the market may be deteriorating again in June thanks to rising mortgage rates and tightening mortgage standards. So a lasting rebound is likely still a long way off.


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