Interest Rate Roundup

Friday, July 25, 2008

New home sales slip; Inventory progress the key story

This morning, we got the new home sales figures for June. Here's a recap of what they showed:

* Sales dipped 0.6% to a seasonally adjusted annual rate of 530,000 in June from 533,000 in May (previously reported as 512,000). That was less than the forecast for a 1.8% decline. Sales were down sharply -- 33.2% -- from the June 2007 pace of 793,000 units.

* Regionally, sales rose 2.5% in the Midwest and 5.3% in the Northeast. They dipped 0.9% in the West and fell 2% in the South.

* The inventory of new homes for sale continued to fall. It dropped 5.3% to 426,000 from 450,000 in May. Supply is also down 21.5% from a year earlier. The "months supply at current sales pace" indicator of inventory dipped to 10 from 10.4 in May. The cycle high was 11.4 months in March.

* The median price of a new home rose 1.4% to $230,900 from $227,700 in May. That was down 2% from a year ago, when the median price of a new home was $235,500.

For the new home builders, selling houses is a business. There is no emotional attachment to the homes - they are just units of inventory that need to be managed. Lately, the strategy to cull that inventory has been two-fold: Slash production dramatically and sell off existing product at whatever price you can get. And it is achieving results: The supply of homes for sale has dropped to 426,600, down more than 25% from the July 2006 peak of 572,000.

That's the good news. The bad news is that we're still about 100,000 units over the long-term average. Moreover, there has been little -- if any -- sign of progress on the existing home inventory front. The demand side of the equation remains weak in both new and existing homes as well. Despite upward revisions totalling 50,000 units over the past few months, new home sales are still running at roughly the slowest pace since 1991. Homes are sitting on the market longer, too. Completed new homes were taking a median of 8.4 months to sell as of June. That's the highest going all the way back to April 1983.

Bottom line: The new home figures are slightly more encouraging than the existing home numbers. But they still show a housing market that's facing significant headwinds.

UPDATE: Bonds are getting rocked today on the stronger-than-expected economic data. Long bond futures were recently down 1 4/32. 10-year yields are up about 9 basis points to 4.09%. This will continue to pressure mortgage rates higher.


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