Interest Rate Roundup

Thursday, September 27, 2007

Some belated thoughts on this morning's new home sales figures

I'm out of the office today, so I haven't had a chance to comment on the August new home sales figures until now. Maybe that's a good thing. After all, my mom taught me that "If you can't say anything nice, don't say anything." Too bad it's my job -- here's my take ...

* Sales plunged 8.3% between July and August to a seasonally adjusted annual rate of 795,000 units from 867,000 in July. The August figures were also down 21.2% from a year earlier (1.009 million SAAR), worse than forecasts for a SAAR of 825,000, and the lowest since June 2000 (793,000). If you exclude that month, you have to go all the way back to December 1997 to find a month with slower sales.

* The inventory of homes for sale slipped 1.5% to 529,000 from 537,000 in July. That was good for a reading of 8.2 months supply at the current sales pace, up from 7.6 in July and just shy of the cycle peak (8.3 in March of this year).

* Here's the big story: Median prices tanked 7.5% from a year ago -- to $225,700 from $243,900 in August 2006. Prices were also down $20,500 from July.

The mortgage crisis that began festering in July struck with a vengeance in August, according to the latest new home sales figures. Both sales and prices fell off a cliff as home builders and home buyers were forced to adjust to the tougher operating environment -- one marked by fading buyer confidence and tighter financing conditions.

If there's a bright spot, it's that the absolute number of new homes for sale is starting to decline fairly steadily. That's a sign builders are cutting back on production and adjusting their prices to today's market. Unfortunately, inventory is still about 200,000 units too high. And in the existing home market, sellers appear as clueless as ever. They're trying to hold the line on prices -- and the supply of homes for sale keeps setting new records as a result. My long-standing call for a lousy housing market until at least late 2008 -- and possibly into 2009 -- looks right on target.


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