Interest Rate Roundup

Wednesday, October 26, 2011

New home sales rise as prices plunge

We just got the latest data on home sales and pricing, and it was a mixed bag. New home sales rose 5.7% to a seasonally adjusted annual rate of 313,000 in September from 296,000 in August. That topped forecasts, and it leaves sales at the highest level since April. Sales rose in two of four regions (the West and South), and fell in the other two (the Northeast and Midwest).

But the median price of a home fell off the table, dropping 3.1% on the month, the third straight decline. Prices were also down 10.4% from a year ago, the biggest monthly drop in more than two years. At $204,400, median prices haven't been this low since last October. The raw number of homes for sale remained at a multi-decade low of 163,000, while the "months supply at current sales pace" indicator of inventory dipped to 6.2 from 6.6.

We continue to get mixed data on housing, with sales stabilizing at relatively low levels but home prices coming under significant pressure. It seems the only way to generate volume in an era of falling consumer confidence, tighter lending standards, and stiff competition from distressed inventory is to slash prices. And that's precisely what new home builders appear to be doing.

We have managed to cut new home inventory to the bone. So once the supply of used homes falls significantly, builders will be in a stronger pricing position. But that's a process that will take a couple of years, rather than months. If you're a home builder, you have to stay lean and mean if you want to survive.


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