Wikinvest Wire

New home sales disappoint

Wednesday, June 24, 2009

The Commerce Department reported(.pdf) a modest decline in new home sales in May as homebuilders continue to struggle in competition with waves of distressed property coming onto the market, many of these properties priced below the cost of construction.
IMAGE Sales fell 0.6 percent to an annual rate of 342,000 last month, following a downwardly revised total of 344,000 in April, and the inventory or unsold homes declined slightly from 10.4 months of supply to 10.2 months of supply.

From year ago levels, new home sales were down 33 percent and, from the peak in 2005, sales are down almost 80 percent in an ongoing demonstration of just how badly the homebuilding industry has been hurt by the bursting of the housing bubble.

The level of 329,000 reached four months ago in January remains the low point for this cycle, a figure that is more than 40 percent below the previous record low from 1991 (not adjusted for population growth) in a data series that stretches over 50 years.

The median sales price, still distorted by builder incentives that routinely run into the many thousands of dollars, fell 3.4 percent on a year-over-year basis.

Record foreclosures continue to weigh on homebuilders as distressed property sales, in most cases occurring at huge discounts, put downward pressure on prices. Both investors and first-time buyers aided by government incentives have been snapping up foreclosed properties in recent months, however, rising mortgage rates may threaten these sales as well.

With home sales still in record low territory amid a glut of properties on the market, it's hard to imagine how much worse conditions may become if mortgage rates continue to rise.

The recent stabilization in both new and existing home sales has come with 30-year fixed-rate loans below five percent. If home loan rates climb to six percent or more, still low by historical measure, home sales could stall badly.


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MarathonDad said...

With increased scrutiny by the government, companies are really tightening credit screening. So even it rates were to go down, it is murder trying to get a mortgage company to sign off on your loan. We are going to be in this trough for awhile...

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