New Home Sales Firm Up In September - October 26, 2011
The good news-bad news succession of reports continues within the American economy. First, we had a dour report issued yesterday morning on consumer confidence by the Conference Board, a private New York-based research organization. Then, earlier this morning, the U.S. Commerce Department issued a ho-hum report on orders for durable goods, in which that metric eased by 0.8% last month. While that result was a touch better than the 0.9% drop forecast, it was clearly an underwhelming result. Now, that same government agency has reported a surprising increase in new home sales in September.
Specifically, the U.S. Department of Commerce reported that sales of new homes increased by 5.7% in September, to an annualized rate of 313,000 homes. That was up from the prior month's annual rate of 296,000 homes, and was the highest monthly total since this past April. It was also better than the consensus forecast of 300,000 homes sold last month. However, the latest total was still below the year-earlier estimate of 316,000 new homes sold.
Also, the report noted that the median sales price of a new home was $204,400 last month. That was off by 10.4% from last year at this time when the median sales price was $228,000. One encouraging development, however, was that inventories of unsold homes declined further last month, with the report showing a 6.2 month's supply of homes. That is the lowest total since April of 2010, and was below the August, 2011 supply figure of 6.6 months.
The better inventory news aside, the further decline in home prices is troubling, for it discourages buyers, who logically will now wait for additional price setbacks before rushing in to purchase a new property. Despite the latest price drop, new homes are traditionally cheaper than existing homes, which also include lower-priced foreclosed properties and other categories of distressed homes, which deflate the median price of a home resale.
In all, new home sales, in spite of the latest small uptick, are still only about a quarter of the level they had been at their peak during the middle of the past decade. Sales, moreover, are still far below a level that is considered healthy. Indeed, they are more than 50% under the 750,000 level that would be considered to be acceptable, but not necessarily strong. Eroding home values, the weak job market, and accumulated debt have all contributed to the malaise in the housing market. We do not expect the prolonged gloom in this sector to lift anytime soon. It will take some stability in prices and a more upbeat employment outlook to encourage sufficient buyers to enter the housing market to regain even a portion of the good feeling engendered here in the earlier years of this century, in our view. And we could be two to three years, or more, from such a decisive turn. It is still not a pretty picture.