New home sales surprised big time on the upside. First, let’s look at the actual news.
The Census Bureau reports that new home sales for June were 384,000, an 11% increase over May sales of 346,000. New home sales were 21.3% below the results for June 2008 of 488,000 homes sold. The inventory of new homes for sale declined to 281,000 which represents 8.8 months of supply. Inventory peaked at 12.4 months of supply in January. The New York Times points out that the percentage increase is the biggest monthly increase in new home sales in the past 8 years.
This is a positive report no matter how many bricks you throw at it. Yes, mortgage financing is cheap and there’s the $8,000 tax credit and some states have their own credit and prices are down but you still can’t deny that more people are feeling more confident about taking on the responsibility of a house. We’re now working on three months of increasing new home sales, so like it or not there is a trend here.
But before you conclude that all is once again right with the world, keep a couple things in mind. These numbers are based on samples and the margin of error for this one is plus or minus 13.2%. There’s a lot of room for adjustment. New home sales also happen to be based on signed contracts not closed purchases. Contract cancellations soared last year but now appear to be coming back to normal. Any major upheaval in the economy could easily cause them to spike back up and invalidate these numbers. Bottom line, these aren’t the most reliable numbers in the world of government reports.
An aside here, you’re probably going to read a lot of comments like the one in the Times about this or that being the biggest increase in so many years. Disregard them! We are coming off of such a low base of activity that any increase is going to produce outsized percentage gains. Comparisons between periods are going to be a little fuzzy for awhile.
Bit by bit the economy is picking up a little steam. If new home sales can continue to post positive sales gains in the face of the glut of cheap foreclosures you have to take it as a positive sign..
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Great news or just a seasonal factor coming to play? Residential sales activity is returning to the levels of the seasonal sales market. No one should be surprised that new homes sales have increased with the incentives of the $8,000 new home buyer program and interest rates below 5.5%.
But hold on, seasonal sales activity should be up. The peak months for sales will be June, July and August. So for the next several months we should continue to see a recovery in activity. The key benchmark for recovery is the median sales price, which is still down. Once the excess building supply and foreclosure activity (www.accuriz.com) abates, this number should correct itself to higher levels of $220,000 to $225,000. This will not occur until the summer selling season of 2010.
So yes, great news, but the real recovery is still a year off.