New Home Sales Stumble In May

Real Estate Broker/Owner

According to the Census Bureau, new home sales disappointed expectations by declining -0.6% in May compared to April when they fell to a 342,000 seasonally adjusted annual rate.

The current rate of new home sales continues to hover around the record low pace that was set in January of 2009 at a seasonally adjusted rate of 329,000.

The pace of home sales is still down -32.8% from last year, and 2008 was a really bad year for new home sales.

New home inventory of unsold new homes also fell by -35.5% from last year to 292,000.

The end result is that the relationship between the supply and demand for new homes, the month's supply of housing, remains very close to what it was last year.  Currently there is a 10.2 month supply of new homes, last year there was a 10.7 month supply, that represents a 4.7% improvement year over year.  At this rate of "improvement", it will be 7-9 years until the new home market has a balanced supply (7 month supply) and demand relationship for new homes.

But before Jim Cramer gets too excited about these preposterous "green shoots", it is important to recognize that the new home market is about to be hit by yet another tsunami of foreclosures.  As we have seen in the past, as more foreclosures come to the market, new home sales typically have a very challenging time competing against the banks.

But who cares about new home sales right?  It's not as if municipalities benefit from new property tax revenues or that jobs are created when homes are built, right?  After all, the builders are the vilians in all of this aren't they?

Not really.  The supply of new homes which currently stands at 292,000, is dwarfed by the supply of existing homes of 3.798 million.  The new home market only has a 7% share of overall housing inventory. 

The problem with the housing market is foreclosures, there are not enough buyers for them, specifically investors.  Until the excess inventory gets cleared off the books, home values will continue to deteriorate. 


Comments (1)

Roy Kelley
Realty Group Referrals - Gaithersburg, MD

We are seeing strong sales activity in the Maryland suburbs of Washington DC. Many REO properties attract multiple contracts.

Jun 26, 2009 01:44 AM