New Home Sales Rise

MBA (8/27/2008 ) Velz, Orawin
New homes sales rose by 2.4 percent in July to a seasonally-adjusted annualized pace of 515,000, following a 2.1 percent decline in June. However, sales of new homes in May and June revised downward by 46,000 units.
During the first seven months of this year, new home sales were down 36.8 percent from the same period last year. The seasonally-adjusted number, however, may be a little misleading, in terms of the actually number of units sold. The total for July was the lowest month since December 1994. The seasonally adjusted number showed an increase because the drop from June was smaller than what we usually see between June and July.

Sales varied considerably by region: up by 38.9 percent in the Northeast and rising by 9.9 percent in the West, all on a seasonally-adjusted basis. Sales declined by 8.2 percent in the Midwest and dropped by 2.5 percent in the South.

The number of homes available for sale fell 5.2 percent, the 15th consecutive monthly decline and the biggest drop since November 1963. The steady decline in inventory, which has reached the lowest level since October 2004, reflected considerable cutbacks in single-family starts, which have posted 14 declines over the past 15 months.

The length of time that houses have spent on the market continued to break records. The median number of months rose to 8.5 in July from 8.3 in June and from 6.0 in July 2007. A huge drop in inventory and an increase in sales pushed down the months’ supply to 10.1 months from 10.7 months in June and 10.8 months in May. The median price for new homes was down 6.3 percent in July from a year ago.

The median home price does not necessarily give the true picture of home price trend, however, as it can be distorted by the mix of sales. The decline in the median home price may have been understated since sales increased the most in the West and Northeast regions, where the value of a typical house is more than the national average.

Two measures of home price released yesterday control for the mix of high- and low-price of home sales by tracking repeat sales of the same houses over time: the Standard and Poor’s Case-Shiller Home Price Index and the Office of Federal Housing Enterprise Oversight House Price Index.

The CSI was down 15.4 percent in the second quarter from a year ago—the largest year-over-year drop since the inception of the index in 1987. While the year-over-year declines in the index continued to set records, the report offered some good news in that the quarterly decline in the index moderated significantly from 24.4 percent (annualized rate) in the first quarter to 9.0 percent in the first quarter. However, since the data are not seasonally adjusted, some of the moderation in home price drops could be influenced by seasonal factors, since home prices generally rise during the spring/summer buying season.

The monthly indices available for a composite of 10 and 20 major cities have shown slower pace of house price declines since February, supporting the view that while home prices should continue to fall for some time, given the historically high months’ supply of homes, the largest drops in home prices may be behind us.

The OFHEO House Price Index fell 1.7 percent in the second quarter from a year ago. The HPI is based on data from both purchase and refinance transactions from Fannie Mae and Freddie Mac. The index excluding refinance transactions posted a sharper drop from a year ago of 4.8 percent. Both OFHEO indices continued to perform better than the CSI largely because the PFHEO indices include only conventional, conforming loans and include relatively few subprime loans as well as adjustable rate mortgage loans.

A separate report showed that The Conference Board's Consumer Confidence Index rose five points to 56.9 in August. The improvement was driven entirely by the expectations component, which gained 5.1 points to 52.8. The present conditions component fell 2.6 points to 63.2.

Consumer assessment of current labor market conditions deteriorated further during the month. The share of consumers finding jobs plentiful fell from 13.5 percent to 13.1 percent, a five-year low. The share finding jobs hard to get increased from 30.2 percent to 32.0 percent. Despite the improvement in the index for the second consecutive month, the overall index is still quite low by historical standards.