The 11% month-to-month rise in US new home sales in June reported yesterday grabbed the headlines, but some of the other indicators are more interesting.
A roundup of analyst opinion by the WSJ’s Real Time Economics blog finds a degree of consensus that the market is at or near a bottom. The fact that prices were down is in some sense good news as it brings affordability into better balance.
As important as the bump in sales is the reduction in inventories. As the WSJ reports, the
ratio of houses for sale to houses sold in June was 8.8. But inventories are shrinking. The ratio was 10.2 in May. At the end of June, there were an estimated 281,000 homes for sale. That’s below 293,000 for sale at the end of May.
Mark Zandi at Moody’s economy.com calculates that excess housing inventory declined from 1.9 million units at the beginning of 2008 to around 1.5 million during the current quarter and will taper off to a near normal level by the end of 2011. Excess inventory is the surplus of homes for sale or rent above a 4% vacancy rate.
Zandi further argues that housing is fairly valued or undervalued in many parts of the country including much of California and the Southwest:
He believes that starts have already bottomed and that prices will bottom in early 2010.
However, Zandi remains concerned about the impact of foreclosures, which are expected to keep rising as loan modification efforts so far have failed to have much impact.
Another ominous sign: Reuters reports that
rising unemployment continues to make more Americans late on their mortgage payments, a sign that the rate of US personal bankruptcies will keep going up, according to monthly data from the Equifax credit bureau.
Barry Ritholtz, at The Big Picture, meanwhile, argues that the monthly data is not statistically significant.
… WE DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.
He puts the June “increase” in perspective by noting that sales were down 21% from a year earlier.
In a similar vein, Floyd Norris of The New York Times notes that
In actual sales, the preliminary estimate is that 36,000 homes were sold, up 3,000 from May but down 9,000 from last June.
To put it another way, this was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.
There are twice as many households in America as there were then, so relative to population this was the worst June ever, by far.